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

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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.

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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:

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HDFC Bank offers virtual accounts to PayZapp users

HDFC Bank will soon start offering digital savings bank accounts, credit cards and instant loans to users of its PayZapp app. The bank also plans to enrol additional merchants for acceptance of electronic payments to increase its present network of 1.2 million shops to 5 million in 18 months.

PayZapp, which was launched two years ago, has more than 14 million users. Over half of these are young users who do not have a bank account. “We are marrying a lot of our strategies by integrating changes that are happening in the market into our own business activity.

HDFC Bank is already a scale player in cards and loan assets. We will use our digital back-end strengths in these businesses to bring more scale into PayZapp,” said Parag Rao, group head for marketing, credit cards and payments business.

According to Rao, PayZapp has the potential to become a 50-million customer franchise with capability for instantly opening accounts and offering credit cards and loans.

HDFC Bank is already the market leader in credit cards with over 1 crore in circulation. It currently issues 2.5 lakh new cards every month. The PayZapp platform is expected to take this to 5 lakh a month. The offered savings account will be a completely digital product and the credit cards virtual, with an option to receive the plastic version. The instant loans would be powered by fintech (financial technology). “Fintech lending is the new kid on the block, which has brought a different way of  sourcing customers for loans,” said Rao.

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Ukraine Will Pursue Hard Reforms This Fall, Finance Minister Says

After a week of back-to-back meetings in Washington, Oleksandr Danylyuk is tired. He gladly downs a cup of coffee before we turn on our microphones to discuss Ukraine’s economy. The affable forty-two-year old finance minister is one of the few reformers left in Ukraine’s Cabinet of Ministers and has a reputation as a doer. He’s in town for the International Monetary Fund’s and World Bank’s annual meetings.

When Danylyuk took over after Natalie Jaresko stepped down in April 2016, expectations weren’t high, but he has exceeded everyone’s expectations. My colleague Anders Åslund captured it well: Danylyuk has “turned out to be the reform anchor in a government that has been less committed to reform than the previous government, and he has managed to keep the state finances in good order.”

The former investment banker managed to render elusive value-added tax refunds automatic, which pleases many foreign businesses, and has presided over a period of modest economic growth. In September, Ukraine returned to the international finance markets with the introduction of a $3 billion Eurobond, and analysts expect that there may be more offerings. Ukraine’s macroeconomic indicators are good, and Danylyuk has become one of the more convincing reform voices within the government—and someone that Ukraine’s formidable civil society actually respects.

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When SSARS does and does not Apply to Preparation Engagements

The Statement on Standards for Accounting and Review Services (SSARS) is a section of the professional standards set out by The American Institute of CPA’s (AICPA), seeking to review earlier standards for reviewing and compiling financial statements and setting out the terms of engagement between the CPA’s and the parties. This section has been set out by the Clarity Project of the AICPA’s Accounting and Review Services Committee (ARSC). The terms of engagement constitute a principal element of Section 21 of the SSARS.

The AICPA’s Section 21 is a significant improvement over the earlier standard, Section 19. Having come into effect in December 2015; AICPA Section 21 overrides the earlier standards. On its part, Section 19 was considered an improvement over the existing standards that had been getting enacted from 1978. It stressed the importance of the independence of the CPA, in that they should not be part of the board or management of the company whose accounts they are auditing. It also required the CPA to obtain an engagement letter before proceeding to prepare and issue financial statements.

 

Supersedes Section 19

Where Section 21 goes beyond Section 19 is in setting out the clear terms for a new service, that of preparing financial statements. Also, it takes changes brought about by technologies such as the cloud into the accounting profession, into consideration. It sets out these requirements in its four sections, sections 60, 70, 80 and 90. Briefly, these are what these sections represent:

Section 60: Describes the General Principles for Engagements performed in accordance with Statements on Standards for Accounting and Review Services

Section 70: Preparation of Financial Statements

Section 80: Compilation Engagements

Section 90: Review of Financial Statements

The highlight of Section 21 of SSARS is that these sections are clearly demarcated. One prescribed action should follow the other, only after the one taken up is completed. It draws a distinction between, for instance, financial statement preparation and a compilation, which is something that CPA’s have to submit for any financial statement submitted to third parties. In this way, Section 21 is a comprehensive set of regulations.

Complete clarity on Section 21

Want to understand how this section relates to your profession? Want to gain clarity and insights into the ways of the workings of this section? A webinar from Compliance4All, a leading provider of professional trainings for all the areas of regulatory compliance, has all the answers relating to the comprehension and implementation of Section 21 of the SSARS.

At this session, Candace Leuck, who owns Athena Finance Group, Inc., which specializes in strategic planning, distressed entity recovery, valuations, and educational programs; will be the speaker. To register for this highly interesting and valuable webinar, please visit Compilation and Review Updates

Understanding of all aspects of Section 21

The aim of this presentation is to familiarize participants with all the sections of SSARS 21. Participants will be able to understand general requirements for SSARS engagements and learn details of new financial statement preparation engagement requirements. Since Section 21 both supersedes Section 19 and differs from it in many ways, Candace will explain the details pertaining to understanding and implementing Section 21, which includes requirements for engagement letters, requirements for understanding of the client, industry and environment, when SSARS does and does not apply to preparation engagements, attest versus non-attest engagements, reporting requirements, and disclosure requirements.

She will cover the following areas at this webinar:

o  Understand general requirements for SSARS engagements

o  Learn details of new financial statement preparation engagement requirements

o  Review compilation and review engagement requirements

o  Discuss the elimination of “management use only” compilations

o  Understand new formats for compilation and review reports

o  Compare and contrast preparation, compilation and review engagements.

This webinar will be of high use to personnel whose work requires them to implement Section 21 of SSARS, such as Public Accountants, Managerial Accountants, and Financial Accountants.

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How to uncover fraud, and put a plan in place to prevent it going forward

Internal fraud, by which people who work for an organization are themselves involved in fraud, is a serious issue for businesses. This kind of fraud is very insidious, as it is stealthy and is almost impossible to detect. Accounts Payable, a core component of most organizations, is one of the primary areas of fraud. This AP fraud is something organizations don’t seem to be precluded from, no matter what the nature of their business or its size.

Yet, learning to detect and prevent Accounts Payable fraud is of critical importance all organizations because as all the payment types present in the market today enable quick and at times seamless payments; they all carry the inherent risk of fraud. Although the Sarbanes Oxley Act (SOX), the most important legislation passed by the American Congress aimed at checking internal fraud was passed with good intentions and is considered the most comprehensive of such laws; completely rooting out and eliminating Accounts Payable fraud has not been possible. This explains why the Association of Certified Fraud Examiners (ACFE) found out that fraud accounts for as much as five percent of all revenues in an organization.

Detecting and plugging the loopholes

Tightening the systems and plugging the loopholes is the first step to detecting and preventing Accounts Payable fraud. For this to happen, the organization has to have a thorough and complete understanding all the possible ways by which AP offers scope for pilfering. A strong and comprehensive audit into which these aspects are taken into account constitutes a good first step towards detecting and preventing Accounts Payable fraud.

And then, there are other steps. It is an explanation of these steps that an in-depth webinar that is being organized by Compliance4All, a very popular provider of professional trainings for all the areas of regulatory compliance, will offer.

At this webinar, the speaker is Ray Graber, a very senior payment industry professional. Ray brings deep and profound understanding of the way banking and finance partner with technology. Please register for this webinar by visiting Where your Payments are Going?

Learning on all aspects of the sources of AP fraud

This webinar is going to be a very interactive one, in which Ray will traverse the various issues concerning AP fraud. He will get into the finer aspects of AP. For instance, not many Finance professionals would be aware that a simple exercise such as a quarterly scan can reveal potential issues to check duplicate payments and can be an important means of detecting and preventing Accounts Payable fraud. He will help participants of this webinar to also identify some strategic areas that when reviewed, can help educate their staff on what to look for and to take a relook at some applications.

These applications could be either internal or vendor developed, and can be used to identify potential hazards. Implementing just these two steps can considerably augment the organization’s chances of detecting leakages that could otherwise go unnoticed. Ray will discuss other issues such as abnormal payment volumes, check/wire amounts, addresses, and related ones.

Combining different actions

A few important steps to detect and prevent Accounts Payable fraud that an organization can try to tighten up its Accounts Payable operations and perform an internal audit will be suggested. These will help the organization carry out its future audits and investigations. The speaker will explain these steps, which, while being important for detecting and preventing Accounts Payable fraud; can be supplemented with other exercises such as data gathering, procedural changes, and employee education. All of these are elements of a robust AP fraud detection and prevention mechanism, and can be carried out without causing the company any major financial overloads.

Ray will cover the following areas:

o  Data gathering-Where we are

o  Establishing the scope and objectives-Where we want to be

o  Assessing your risk and resources

o  Risk assessment for specific payment types

o  Specific incidences to research

o  Management approach

o  Summary

Personnel such as Accounts Payable Managers, Payments Professionals, Operations Managers, Cash Management Product and Sales Staff, Treasury Managers, Commercial Bankers, Corporate Treasury Professionals, Payments Network Providers, Payments Processors will find this webinar highly valuable.

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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How to Achieve the best Outcome in an Audit

An internal audit, as we all know, is carried out for a number of specific purposes, the main one among which is to assess the adherence to the industry guidelines for quality and processes. Helping the organization meet the requirements of processes and standards, which are usually issued by regulatory agencies and other relevant bodies and boards, is the main aim of an internal audit. An internal audit seeks to bring about quality through standardization of many of the processes that go into the product.

In the context of the food industry, this adherence is all the more important, because food contamination is quite a serious issue in all parts of the world. According to statistics from the Center for Disease Control and Prevention (CDC); about one in seven Americans, or close to fifty million, get sick from consuming contaminated food. More than an eighth of a million people get hospitalized for this reason, and some 3,000 people lose their lives due to food contamination in the US every year.

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The major challenge in food contamination is to identify the source of the contamination. Since we humans eat a variety of foods in our meals, it is difficult to zero in on the exact source. Our food is usually consumed in variety, and most of it is from different and varied sources. If all of our food were derived from just one source, this task would have become interminably easier. But this is not the case; hence, the problem in identifying the source of the food contamination.

Means for ensuring quality

An audit is a sure method of identifying and preventing food contamination. An audit is a continuous process that is planned, specified, and carried out at set intervals and documented to determine the quality of a product. A food audit does all this to food products. It adds strength to the process of preparing, distributing and consuming food, and provides confidence that the food that we consume meets the standards set out for its quality and safety and has gone through the prescribed processes. This is the essence of a food audit, and this is described as such by the Global Food Initiative.

The main aims of an internal audit for food are twofold:

Apart from helping a food facility to locate and set right issues pertaining to the Quality Management Systems; a food internal audit identifies a problem before it gets detected by an external audit, and rectifies it. Doing so at this stage will prevent the problem from reaching the end consumer. All these conditions can be met when the internal audit is objective, is done with commitment and conviction, reviews the quality programs, and is comprehensive.

  • An effective food internal audit also ensures that the facility is adapting and implementing quality systems, which leads to involving top management into making improvements over time.
  • The FDA, many regulatory agencies from around the world and the ISO –in the form of 19011, and to a lesser extent, the ISO 9001, 14001 and 22000 –all have standards for food safety. An internal food audit should ensure that these are being complied with.

Get complete understanding of internal food audits

All the finer aspects of an internal food audit will be explained in detail at a webinar that is being organized by Compliance4All, a leading provider of professional trainings for all the areas of regulatory compliance. At this webinar, the speaker is Ruth M Bell, a Food Safety/Quality and HACCP Management Consultant, Auditor and Trainer based in the UK.

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To derive the benefit of the deep and varied experience that Ruth Bell brings to food quality, food technology and food audits; please enroll for this webinar by visiting Food Technology for Non-Technologists

The purpose of this webinar is to provide Internal Auditors with an overview of the tools and information they need to carry out thorough and productive audits. Ruth will give them the knowledge of how to achieve the best outcome in an audit. The learning from this session will help internal auditors gain knowledge of:

  • What an audit is and why they’re carried out
  • The skills and qualities needed by an auditor
  • Audit documentation and preparation
  • Audit techniques
  • How to judge non-conformances

This is a session that is highly useful for those involved directly in food quality audits or those who work with them. These include HACCP Team Members, Technical Managers, Production Managers, Engineering Managers, and Consultants.

Although meant for internal auditors, those planning to become Internal Auditors in the food industry, and Consultants; the learning from this webinar will benefit just about anyone involved in the auditing process, be they auditees or supervisors.

Ruth will cover the following areas at this webinar:

  • Audit Process
  • Audit Preparation
  • Audit Techniques
  • Questioning Techniques
  • Non-Conformities and Corrective Action Close Out
  • Audit Follow-up and Close Out.