Understand qualitative aspects of operational risk first, says DTCC

Implementation Outlook

It is necessary to direct initial efforts to the qualitative aspects of operational risk because that is how a firm can develop and maintain risk sensitivity in people’s mind-sets, Robbins said in January at an operational risk conference organised by the Securities Operations Forum in New York.

Speaking later in an interview, Robbins said that focusing initially on operational risk identification was consistent with the new Basel Accord.

“We think it’s much more important to identify possible areas of risk rather than focus our energies on measurement approaches. It is in the interest of our members and the industry to give priority to the understanding of risk before we focus on measuring it.

“We need everybody to be thinking about risk in everyday processes. Everyone must be an active participant – a risk manager – and not take anything for granted,” said Robbins.

The DTCC would be adopting certain quantitative measures and information of operational risk determination and using them to validate the qualitative aspects, but it was premature to say whether the securities clearing organisation would be implementing the AMA approach, she added.

Robbins started the operational risk unit at the DTCC in mid-2001 to improve on the existing risk management culture. “It was felt that just as we had a very robust credit and market risk functions, it would be appropriate and made good business sense to have a separate oprisk management function to make use of the techniques and methodologies that the entire financial industry is building.”

The DTCC’s risk management framework is based on its ability to identify and assess, disclose, measure, monitor and manage risk.

Through its subsidiaries, the DTCC provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, over-the-counter credit derivatives and emerging market debt trades.