Ways of applying operational risk management in banks

The banking sector should rank foremost among the many sectors of the economy that have undergone drastic changes in the last couple of decades or so. The convergence of two colossal factors – globalization and the development of technology – has made inroads into the banking sector, impacting it with a force that was seldom seen earlier.

The number one area of the banking sector to be affected by these changes is operations. Many factors such as credit, software, etc. need to be regulated for their risks. However, the core of the banking sector is operations. Because of this, operational risk management in banks is the highest priority for banks.

The Basel Accords

risk-operational

 

The primacy of operational risk management in banks can be understood from the fact that one of the most important regulations aimed at the banking sector, the Basel Accords, a series of plans to regulate the banking sectors around the world; has operational risk management in banks on top of its agenda. Operational risk management in banks is one of the four areas identified at the second of these conferences, Basel II, the others being regulations concerning capital allocation, disclosure requirements and regulatory arbitrage.

operationalRiskManagementInBanks

Operational risk management in banks according to Basel

The Basel Accord takes a very comprehensive view of operational risk. It describes operational risk as loss that can occur from a variety of reasons, all of which are linked to the core banking structure. The Basel Accord sees risk as something that can happen from any of the operations concerning the bank. It requires operational risk management in banks to take all of these factors into consideration before arriving at solutions to prevent loss from these operations.

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From the Basel Accords perspective, operational risk management in banks need to take into consideration the following events and identify all of these in identifying frauds and losses:

Internal fraud

Any fraud from any of the bank’s employees, insider trading, false reporting of profits are among the kinds of activities listed by Basel as being part of internal fraud.

External fraud

External fraud can happen from a number of sources. It could be robbery, burglary, hacking of security systems or check bounce. These are part of operational risk management in banks.

Employee fraud

Employees can be a major source of bank fraud. Steps towards mitigating actions from employees that endanger the functioning of the bank constitute a major step in operational risk management in banks.

Other kinds of frauds

Operational risk management in banks has to also take other sources of fraud. These can be from wrong entry of accounts, improper documentation for credit or loans, etc.

Ways of applying operational risk management in banks

Basel II has suggested methods which banks can take to apply risk management in their sector. These include:

operationalRiskManagementInBanks

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Finance chiefs say bitcoin is ‘real’ but many think it’s in a bubble right now

Bitcoin is a “real” asset but it’s currently in a bubble, according to a CNBC survey of global finance bosses, with many calling it a “fraud.”

Ninety-seven chief financial officers (CFOs) on CNBC’s Global CFO Council were asked their view on bitcoin. Out of the 43 that responded, 27.9 percent said the cryptocurrency is “real but in a bubble.” Another 14 percent said that bitcoin is “real and still going higher.”

Meanwhile, 27.9 percent said bitcoin is a “fraud” while 30.2 percent of CFOs said they don’t know enough about the digital currency to have an opinion.

Of the finance chiefs based in Europe, the Middle East, and Africa, 41.7 percent said that bitcoin is “real but in a bubble” compared to 20.8 percent in the U.S. and 28.6 percent in the Asia Pacific region. A third of respondents in EMEA also think bitcoin is a “fraud,” higher than their counterparts in the other regions across the world.

Karim Hajjar, chief financial officer of Solvay, and a member of CNBC’s Global CFO Council said, that the “jury is out on bitcoin.”

“It’s not a currency we are using for a multibillion dollar business … it’s something we are curious about, we are very very open to, but we haven’t found a way to really integrate it into our business,” Hajjar told CNBC in a TV interview on Tuesday.

“If a hypothetical customer comes to us and says, ‘I have a bunch of bitcoins to buy your products,’ first thing I’ll probably want to do is not turn them away but probably find a way to sell those bitcoins before I commit to the order and then really make sure we meet the needs of that customer.”

Bitcoin hit an all-time high on Sunday, breaking above the $8,000 mark for the first time ever. The price of the cryptocurrency is up over 700 percent this year.

The rapid rise of bitcoin has sparked fierce debate over the the future of the digital currency. JPMorgan Chase CEO Jamie Dimon famously called bitcoin a “fraud” and said anyone who buys it is stupid. UBS meanwhile called bitcoin a “speculative bubble.” And regulators have also been keeping an eye on bitcoin with some clamping down on trading. China recently banned cryptocurrency exchanges.

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Companies continue to increase transparency of external audit oversight

More companies are providing investors and other stakeholders with information about audit committee oversight of external auditors, according to the latest edition of the Audit Committee Transparency Barometer, an annual report released Wednesday by the Center for Audit Quality (CAQ) and Audit Analytics.

“For the fourth year in a row, audit committees have continued to enhance transparency around their oversight of the external auditor by voluntarily and broadly increasing disclosure,” Cindy Fornelli, executive director of the CAQ, said in a press release. The CAQ is affiliated with the AICPA.

The barometer found that 37% of S&P 500 companies’ proxy statements included enhanced discussions of the factors audit committees considered in recommending the appointment of the external audit firm. That’s up from 31% in 2016 and 13% in 2014.

The analysis, which also looks at mid-cap and small-call companies in the S&P Composite 1500, found that 24% of S&P MidCap 400 companies and 17% of S&P SmallCap 600 companies provided enhanced discussion of audit committee considerations in choosing an audit firm. Those percentages are up from 10% and 8%, respectively, in 2014.

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How to test your firm’s Compliance Program based on what the Regulators are Focusing on

The financial regulators publish a listing of their exam initiatives for the upcoming year. Financial advisers use this listing to anticipate what thinking the regulators bring into a financial year, which will have a major bearing on the financial industry. This listing offers financial advisers an idea of what to expect during a particular financial year.

For instance, taking off from the backdrop of the financial crisis of 2007 to 2009; the financial regulatory priorities listed out in a study carried out by Harvard included the following:

o  Increased capital regulation

o  Improved stress testing and capital planning

o  Regulation of the liquidity requirements

o  The need for learning the tools for regulatory migration across financial institutions

o  The authority the regulatory agencies have in regulating large financial institutions

These constitute the broad items of financial regulatory priorities. Financial advisers may use these financial regulatory priorities issued at a particular point of time to make assessments and calculations that help them arrive at decisions which they pass on to investors. However, different priorities emerge from time to time, simply because the financial situation is fluid and ever evolving.

Based on evolving priorities and situations

Financial advisers may make valuations and offer honest advice to investors about the financial markets, but these can be subject to flux. In the event of these changing goals and situations; it is not possible to arrive at black and white conclusions about the priorities.

Financial professionals and those who take their advice need to be fully alert to the happenings in the financial landscape if they have to arrive at the right decisions. How do they do that? What is the basis on which the exam initiatives need to be understood in order to facilitate sensible decision-making about finance?

Learning about how to understand exam initiatives

This is what a webinar from Compliance4All, a leading provider of professional trainings for all the areas of regulatory compliance, will be offering at a webinar. This webinar will have Lisa Marsden, IACCP, who is the President and Founder of Coulter Strategic Services. Coulter Strategic Services, which provides Financial Advisors and compliance consulting firms with compliance and project management services, as the speaker.

Please visit day to day tasks of financial compliance to enroll for this webinar and gain clarity in understanding the details set out in the regulatory exam initiatives.

Understanding how the priorities suit participants’ organizations

The speaker will explain what each financial industry participant needs to know about this year’s regulatory initiatives. She will highlight the importance of learning from priorities that are involved in the day to day tasks of financial compliance.

She will show how participants can learn the ways of reviewing the regulator’s annual priorities list and incorporating the priorities that relate to their own firm into their compliance program. The ways by which to test the specific areas and how to remediate any issues found, will be explained. Beyond the priorities, Lisa will also show how to find out what to expect from exams and how to test the suitability of the participants’ compliance program based on what the regulators are focusing on.

Lisa will cover the following areas at this webinar:

o  Learn how to gain access to the financial regulators priorities

o  Understand how to apply those priorities to your firm

o  Incorporate the priorities into your annual review

o  Distinguish which priorities need to become part of the Compliance Manual/Code of Ethics

o  Determine what your firm’s financial regulatory priorities should be

o  Other sources for annual priorities.

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Crypto-Mania Grips Hong Kong as City Looks for Life Beyond Banks

In the mid-1990s, Johnson Leung embarked on a career in shipping. In the early 2000s, he moved to finance. And now, he runs a Hong Kong startup that aims to improve how container ships are booked using blockchain technology.

Many in Hong Kong hope the city can make a similar leap. The shipping and banking hub, which has struggled for years to nurture a domestic technology industry, is embracing the blockchain revolution as it looks for new sources of growth.

Skeptics say it’s a risky bet on an unproven technology — one with more than its fair share of hype and, in some cases, fraud. But a growing number of Hong Kong entrepreneurs and policy makers are convinced the online ledger system that underlies cryptocurrencies like bitcoin will eventually reshape everything from financial services to supply chains. They say the city’s laissez faire approach toward regulation, along with its expertise in finance and logistics, make it a natural hub for blockchain startups.

“I don’t see why Hong Kong can’t be a leader of blockchain technology,” said Leung, who co-founded 300cubits.tech after more than a decade in the financial industry that included stints as a research analyst at JPMorgan Chase & Co. and Jefferies Group LLC. “It’s so new that it’s not like any country has a huge advantage compared to us.”

Hong Kong’s government has been throwing resources at the technology. The city’s monetary authority is developing its own digital currency and is testing blockchains for trade finance, mortgage applications and e-check tracking. Hong Kong’s securities regulator has joined R3, a global consortium that develops blockchain technology for financial transactions, while a government-backed research institute has worked on a blockchain-based system for tracking property valuations, among other initiatives. Hong Kong Exchanges & Clearing Ltd., the city’s publicly-traded exchange monopoly, plans to start a blockchain platform for early-stage companies and their investors next year.

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A common technique plots the data to help detect trends, cycles, and shifts

Some of the functions of medical device manufacturers include:

o  Analyzing complaints

o  Processing data

o  Evaluating nonconformances

o  Utilizing other quality data sources.

The main purpose of this analysis, done using appropriate statistical methodology, under §820.100, is to identify the cause of nonconforming products and other quality problems. Time series analysis is one such family of these tools. Also called trending analysis, time series analysis uses visual methods to plot data over time.

A common technique plots the data to help detect trends, cycles, and shifts. The major use of these valuable methods is that they can help anticipate problems before they occur and demonstrate the effectiveness of corrective actions.

A webinar from Compliance4All on time series analysis

Dan O’Leary, President of Ombu Enterprises, LLC, a company offering training and execution in Operational Excellence, focused on analytic skills and a systems approach to operations management, will be the speaker at a webinar that analyzes time series analysis. This webinar is being organized by Compliance4All, a leading provider of professional trainings for all the areas of regulatory compliance.

Please visit methods when the data has a time based order to register for this webinar on time series analysis.

Full explanation of time series analysis

At this session, Dan will explain the graphical methods. In addition, he will also demonstrate some analysis techniques using Excel. Some special cases including data smoothing using moving averages, analysis with a lag function, and statistical process control (SPC), will be explained. By attending this webinar, participants will be able to gain understanding of time series analysis and some Excel capabilities to help perform the analysis. These tools are valuable for improvement projects and reporting information to management.

When the appropriate method is not clear, data analysis can be difficult. At this webinar, Dan will explain the methods when the data has a time based order. Excel includes functions and methods that can one can use to analyze the data and present it in a meaningful way.

Meaningful objectives

In this webinar, which will be of immense use to professionals who use statistics in their quality requirements, such as Quality Engineers, Manufacturing Engineers, Design Engineers, Data Analysts, Auditors, CA&PA Specialists, and Quality Managers; Dan will impart the following objectives:

o  Using run (trend) Charts

o  Determining a Linear Trend

o  Data Smoothing (Moving Averages and Lag Functions)

o  Using variables Control Charts(x-bar & R).

Which leads to fines in the millions of dollars per intrusion

Developments in the area of medical device software –i.e., the software that is put to use in medical devices –have been taking place at such a torrid pace that regulatory agencies such as the FDA have been unable to keep pace with them. Almost invariably, every development in medical device software brings about a new level of complexity.

Also, the classification of the device is another factor the FDA and other regulatory agencies have had to contend with: Different regulations have to be made depending on whether the software in medical devices is to be classified as a device itself, is used to alter the performance of the device, or is used for computing values. The inability of the regulatory agencies to catch up with the speed of developments in the medical device software arena has had the agency scurrying for quick solutions.

Among these are its decision to integrate the current provisions of voluntary standards developed by the National Institute of Standards and Technology (NIST), which it considers as a useful guidance for medical software professionals and voluntary information sharing organizations to meet cybersecurity challenges into its regulatory oversight. The onus of being knowledgeable about FDA regulations thus rests on firms that design and market software.

Learning on all the aspects of medical device cybersecurity

A formal learning session that examines this complex relationship is being organized by Compliance4All, a leading provider of professional trainings for all the areas of regulatory compliance. The speaker at this webinar is Casper Uldriks, ex-FDA Expert and former Associate, Center Director of CDRH. Participants who wish to gain clarity on these aspects of medical device cybersecurity can register for this webinar by visiting National Institute of Standards and Technology

The speaker at this webinar will seek to help participants identify the FDA’s fundamental premarket and postmarket requirements that involve software. When medical device companies go to the FDA for approval to market their product; they need to be very well informed about everything that the FDA states and requires in this regard, because, as we have examined, the burden of design factors requires well informed considerations about how medical device manufacturers protect their product’s software and how they outsmart increasingly sophisticated cyber attackers.

All-round plans

At the same time, device manufacturers also need to be totally compliant with the regulatory options and responsibilities lie with them when a cybersecurity problem is located in their device. Their responsibilities include plans about how to recover and publicly disclose cyberattacks, especially when private medical records are involved. Not getting this right leads to fines that run into millions of dollars for every breach.

So, their cybersecurity efforts should be inclusive of important factors such as these among others:

o  Design planning

o  Postmarket vigilance

o  Training for employees

o  An action plan for managing an attack.

Learning on the factors to consider

Casper will help participants identify these basic considerations at this webinar. He will explain the kind of device cybersecurity programs that protect and foster the performance of device based software or standalone software that device manufacturers need to instill in order to assure the safe use of the device. Such programs need to use the FDA’s premarket and postmarket information requirements when entering and staying in the market.

This session is of very high value to professionals who deal with some or another form of medical device software and its marketing. This includes those in Regulatory Affairs, Quality Assurance, Software Design Engineers, Manufacturing, the Complaint Department, Hospital Risk Department, and those who market their own labels.

Casper will cover the following areas at this webinar:

o  FDA’s Cybersecurity Premarket Design Information

o  FDA’s Postmarket Controls

o  Voluntary Controls

o  Cybersecurity Training

o  Recovery Plans.