Operational risk
WHAT IS THIS? Operational risks are those arising from people, processes and systems – the biggest form of exposure for many industries, but one that was neglected by financial firms until the collapse of Barings Bank in 1995. It was added to the Basel capital framework in 2004, but attempts to model operational risk were dealt a heavy blow by the huge, unforeseen losses suffered by banks in the aftermath of the financial crisis.
Modeling catastrophic operational risk using a compound Neyman–Scott clustering model
In this paper, the authors discuss the hazard generated by OpRisk driven by natural and human-made disasters, and argue the position of the LDA as the most-fitted statistical approach to deal with it.
Top 10 operational risks for 2018
The biggest op risks for 2018, as chosen by industry practitioners
Top 10 op risks 2018: model risk
Model risk re-enters top 10 amid avalanche of validation regulations
Top 10 op risks 2018: talent risk
Fears over dearth of talent across tech and risk management
Top 10 op risks 2018: organisational change
Banks fear pace of technological change will leave them exposed; others worry they could be superseded altogether
Top 10 op risks 2018: outsourcing
GDPR tipped to spark rise in disputes with third-party vendors
Top 10 op risks 2018: theft and fraud
Cyber theft fears widespread, but old-fashioned frauds dominate losses
Top 10 op risks 2018: unauthorised trading
Banks say threat from rogue algos outstrips that of human traders
Top 10 op risks 2018: regulatory risk
Fed’s cease-and-desist order against Wells Fargo spooks market
Top 10 op risks 2018: IT disruption
Fear of disabling cyber attack trumps risk of data theft
Top 10 op risks 2018: data compromise
Banks fearful of data breach missteps as GDPR looms
Top 10 op risks 2018: mis-selling
Speculation rife among survey participants over ‘the next PPI’
Top 10 op risks in 2018: IT disruption heads poll
Cyber risk dominates three of top four categories; model risk and mis-selling re-enter top 10
The absence of evidence and the evidence of absence: an algorithmic approach for identifying operational outages in TARGET2
This paper implements an algorithmic approach to identify participants’operational outages based on transaction data.
Pillar 2 moves to centre stage for op risk capital
US banks set for sharp falls in Pillar 1 requirements, but regulator-set add-ons cloud SMA’s impact
Monthly op risk losses: AML failings cost banks $1.1bn
Also: Japanese crypto exchange loses ¥58 billion in hack; Deutsche, UBS, HSBC settle spoofing claims. Data by ORX News
Op risk modelling to survive move to SMA
Models will still be needed to measure forward-looking risks under Pillar 2
Hackers’ jackpot: Mifid heightens cyber risk
Platforms and reporting entities develop individual solutions, but no silver bullet
Apac banks fear cyber risk capital shortfall under SMA
Method’s reliance on past losses and lack of scenario analysis could weaken cyber risk defences
Banks wrestle with conduct risk capital add-ons
Conduct risk-related additions to Pillar 2 capital raise questions over scope of UK’s Senior Managers Regime
JP, Citi may not see capital benefit from new op risk rules
Collins floor may also prevent Morgan Stanley, State Street and Wells Fargo from realising SMA savings
Goldman discloses ‘speed bumps’ for forex clients
Past behaviour may subject clients to a 200-millisecond hold period, as US bank tries to avoid losses
Chinese megabanks set to lose out in switch to SMA
Bank of China, ICBC likely to see lower reductions in operational risk capital due to reliance on interest income
Basel op risk modelling blow shifts focus to Pillar 2
Demise of AMA leaves industry needing risk-sensitive approach for calculating top-up capital, says consultant