Raft to commercialise DrKW's op risk system

Dresdner Kleinwort Wasserstein (DrKW), the investment banking arm of Germany's Dresdner Bank, and Raft International, the component-based software provider to the financial services industry, have jointly developed and deployed Radar, a near real-time global operational risk management application, which is already live in the bank's London, Frankfurt, New York and Asian operations.

The browser-based offering, which runs on DrKW's corporate intranet, is a rules-based, workflow-orientated application which maps the bank's corporate structure, geographic spread, business processes, product structure and control environment into a fully automated loss measurement and management solution.

"We started in early 2000 to look at automating loss data collation and operational risk reporting for the bank," said Jonathan Howitt, director of operational risk at DrKW in London. "Once we had established our overall risk control framework, Raft International helped us build a prototype, which we took to front-office and operations management as a solution for their error reporting process."

Radar went live in London in December 2000, and was deployed this year in Frankfurt, New York, Hong Kong and Tokyo. As well as sales, trading, and settlement errors, the system has been rolled out to various support activities for more generic incident-capture purposes.

The global implementation means all loss data is centrally available within the bank's risk control group as soon as it is recorded, as well as facilitating a consistent global measurement and management approach. The entire application is parameterised and meets all of the current suggestions for loss-event typing and categorisation proposed for the new Basel capital Accord.

"The architecture allows us great flexibility, and we were easily able to add the new requirements once they were known," said Howitt. "As the industry moves towards finalising the [Basel II] requirements, we will be able to adapt our existing loss data to comply with them. We have also concentrated on data collation and analysis because we believe this will be crucial in complying with the advanced measurement criteria to reduce our regulatory capital allocation."

The next phase, which will see the addition of key risk indicator functionality, is scheduled for completion in Q1 2002.

"By combining loss data and risk indicators on the same platform, we can see the inter-relationship between the two - for instance, for a given activity we can profile how changes in staffing levels, system performance, and business volumes affect the frequency and cost of loss incidents," added Howitt.

This kind of information allows the bank's executive management access to up-to-date information and provides the ability for rapid decision-making.

Raft International has taken the component assemblies that form the DrKW Radar solution and commercialised them to create Raft Radar, which the company believes will become an industry standard tool for measuring and managing operational loss incidents.

"The financial services industry has no choice but to look at op," said Mike Finlay, sales and marketing director at Raft International, tasked specifically to take Raft Radar to market. "Although a few players may try to ignore the requirements as long as they can, regulators are serious about op risk and are already implying that all organisations must provide either five years of internal historical loss data or a combination of three years of internal data with a similar period of external market data if they want to qualify for an advanced measurement approach. This means that everyone needs to start collating their loss data now, including any data for the last calendar year."