OpRisk Asia: regional growth could undermine ORM, conference hears

Continuing growth in the Asian market means expansion could override caution in operational risk

Although Asian economies were less affected by the global financial crisis, this relative prosperity means operational risk managers are in danger of being ignored, warned speakers at the OpRisk Asia conference in Singapore today.

Keynote speaker Urban Wilde, the Asia-Pacific chief risk officer for Barclays Wealth Management, pointed out: "The main problems are culture and compensation. Why would a banker join your bank? Because they want to keep serving their clients and they want more money. There's so much competition in [Asian markets] – bringing in more assets drives the front office and this is challenging for the risk people. There can end up being quite an antagonistic relationship between the front office and the control functions – that's inherent, especially in markets where competition is strong, and it causes problems for an efficient risk culture."

Wilde, a former regional chief credit officer at UBS, highlighted a difference between his previous and current jobs: "Credit is a lot easier – everyone has to go through you or the transaction won't be booked. As chief risk officer you have to go out and convince people; it's a constant challenge to make people understand and convince them of the added value that op risk management can bring. They need to know what's in it for them. The added value is there at bank level – you have increased shareholder value, reduced earning volatility, greater client confidence, and you avoid being fined by the regulators – but it might not be there at an individual level."

Later speakers echoed Wilde's concerns, pointing to the need for risk managers, especially op risk, to be involved throughout the sales process.

"You need to make sure you are a friend and a consultant, not just someone who complains," commented Darren Measures, JP Morgan's head of risk for the Asia-Pacific region. "There is always a trade-off between new products and the capability you have to handle risk, and the more marginal the business case the more leverage you as a risk manager have."

"Management often thinks risk can be addressed after it comes in the door," said Patricia Jalleh, head of risk strategy at United Overseas Bank. "But a lot of the time that's when you realise the deal is not so attractive, because dealing with the risk will involve so much more extra spending. The return on investment including the risk controls is much more accurate." She added that growing sales of retail products had opened up new priorities for op risk managers, with the increased danger of misselling: "There is a lot of pressure on selling retail products, so customer knowledge is much more important."

Rajit Punshi, a managing principal with the Operational Risk Practice, added: "The important question is: do the risk people feel empowered to put their hands up when there is a problem? The role of the risk manager has to be to challenge the trade-offs between risk and return that are being made, and to make sure enough resources are being devoted to handling that risk."

Choosing the right key risk indicators (KRI) out of the thousands available was important as well, he said: "The KRIs will depend on the economic cycle. Events such as misselling that are emerging now occured during the upturn, so we need to think about what KRIs would have worked at that time."