Operational Risk Management: A Complete Guide for Banking and Fintech

Cover
Title Page
Copyright Page
Contents
Preface
Acknowledgments
Chapter 1 Definition and Drivers of Operational Risk
	The Definition of Operational Risk
	2012 London Olympics: A Case Study
		Test One: Do the Seven Basel Operational Risk Categories Work in the Real World?
		Test Two: The Risk Management Tools
	Operational Risk Management and Operational
Risk Measurement
		Operational Risk Management
		Operational Risk Measurement
		The Relationship between Operational Risk Management and Other Risk Types
	Drivers of Operational Risk Management
	Key Points
	Review Questions
	Notes
Chapter 2 The Regulatory Push
	History of the Basel Accords
	Rules of the Accords
		Basel I
		Basel II
	Adoption of Basel II in Europe
	Adoption of Basel II in the United States
		Securities and Exchange Commission Amendments to the Net Capital Rule
		U.S. Regulators’ Adoption of New Regulations to Apply Basel II
	Impact of the Financial Crisis
		The Limitations of Basel II
		European Response to the Crisis
		U.S. Response to the Crisis
	Basel III
	Key Points
	Review Questions
	Notes
Chapter 3 The Operational Risk Framework
	Overview of the Operational Risk Framework
	The Foundations of the Framework
		Governance
		Culture and Awareness
		Policies and Procedures
	The Four Data Building Blocks
		Loss Data Collection
		Risk and Control Self-Assessment
		Scenario Analysis
		Key Risk Indicators
	Measurement and Modeling
	Reporting
	Risk Appetite
	Key Points
	Review Questions
	Note
Chapter 4 Operational Risk Governance
	Role of Governance
	First Line of Defense
	Second Line of Defense
		Who Should Own the Operational Risk Function?
		What Should the Operational Risk Function Own?
	Third Line of Defense
		Audit
		Validation
	Risk Committees
	Key Points
	Review Questions
	Notes
Chapter 5 Culture and Awareness
	Winning over the Firm
	Marketing and Communication
	Agile
	Training
	Planning
	The “Use Test”
	Key Points
	Review Question
	Note
Chapter 6 Policies and Procedures
	The Role of Policies, Procedures, Guidelines, and Standards
	Best Practices
	Operational Risk Policy
	Sample Operational Risk Policy
	Sample Standards, Procedures, and Guidelines
		Extract from a Loss Data Standards Document
		Extract from a Loss Data Procedures Document
		Extract from a Loss Data Guidelines Document
		Linkage between Documents
	Key Points
	Review Question
	Note
Chapter 7 Internal Operational Risk Event Loss Data
	Operational Risk Event Data
	Internal Loss Data or Internal Operational Risk Events
		Why Collect Operational Risk Event Data?
		Who Should Collect the Operational Risk Event Data?
		What Should Be Collected in the Operational Risk Event Data Program?
	Risk Event Categories
		Internal Fraud
		External Fraud
		Employment Practices and Workplace Safety
		Clients, Products, and Business Practices
		Damage to Physical Assets
		Business Disruption and System Failures
		Execution, Delivery, and Process Management
	Using the Basel Risk Categories
	Minimum Operational Risk Event Data Standards
		Comprehensive
		Threshold
		Amount
		Date
		Description and Causes
		Criteria for Allocation to Business Line
		Criteria for Allocation to Central and Supporting Functions
		All Impacted Departments
		Boundary Events Identified
		Action Items
		Nonfinancial Impacts
	Where Should Operational Risk Event Data Be Collected?
	When Should Operational Risk Event Data Be Collected?
	How Should Operational Risk Event Data Be Collected?
	Key Points
	Review Questions
	Notes
Chapter 8 External Loss Data
	External Operational Risk Event Data
	Sources of External Loss Event Data
		Subscription Databases
		Consortium Data
	Challenges of External Data
		Société Générale and the External Event That Shook the Operational Risk World
	Key Points
	Review Question
	Notes
Chapter 9 Key Risk Indicators
	Key Risk Indicators
		Key Performance Indicators
		Key Control Indicators
		Metric Types
	Selecting Kris
	Thresholds
	Kri Standards
	Kri Challenges
	Metrics Examples
		People Metrics
		Compliance Metrics
		Technology and Infrastructure Metrics
		Business Continuity Metrics
		Client Metrics
		Trade Execution and Process Management Metrics
		Financial Statement Metrics
	Key Points
	Review Question
	Note
Chapter 10 Risk and Control Self-Assessments
	The Role of Assessments
		Control Assessments
		Risk and Control Assessments
		RCSAs
	RCSA Methods
		Questionnaire Approach
		Workshop Approach
		Hybrid RCSA Methods
	RCSA Scoring Methods
		Scoring Control Effectiveness
		Risk Impact Scores
		Probability or Frequency
		Risk Severity
	RCSA Best Practices
		Interview Participants Beforehand
		Review Available Background Data from Other Functions
		Review Past RCSAs and Related RCSAs
		Review Internal Loss Data
		Review of External Events
		Carefully Select and Train Participants
		Document Results
		Score Appropriately
		Identify Mitigating Actions
		Implement Appropriate Technology
		Ensure Completeness Using Taxonomies
		Themes Identified
		Leverage Existing Assessments
		Schedule Appropriately
		Backtest or Validate Results
	Key Points
	Review Question
	Note
Chapter 11 Scenario Analysis
	Role of Scenario Analysis
	Scenario Analysis Approaches
		(a) A Clearly Defined and Repeatable Process
		(b) Background Preparation
		(c) Qualified and Experienced Facilitators with Consistency in the Facilitation Process
		(d) The Appropriate Representatives
		(e) A Structured Process for the Selection of Data
		(f) High-Quality Documentation Which Provides Clear Reasoning and Evidence Supporting the Scenario Output
		(g) Independent Challenge and Oversight
		(h) A Process That Is Responsive to Changes
		(i) Mechanisms for Mitigating Biases
	Scenario Analysis Output
	Key Points
	Review Questions
	Notes
Chapter 12 Capital Modeling
	Operational Risk Capital
	Basic Indicator Approach
	Standardized Approach
		Alternative Standardized Approach
		Future of the Basic and Standardized Approaches
	Advanced Measurement Approach
		Quantitative Requirements of an AMA Model
		Loss Distribution Approach to Modeling Operational Risk Capital
		Scenario Analysis Approach to Modeling Operational Risk Capital
		Hybrid Approach to Modeling Operational Risk Capital
	Insurance
	Future of Capital Requirements: Basel III
		Basel III Standardized Approach
		Disclosure
	Key Points
	Review Questions
	Notes
Chapter 13 Reporting
	Role of Reporting
	Operational Risk Event Reporting
		Impact of Gains on Internal Event Reporting
		Trends in Internal Losses
		Internal Losses by Risk Category
		Timeliness
		External Loss Data Reporting
	Risk and Control Self-Assessment
Reporting
	Key Risk Indicator Reporting
	Scenario Analysis Reporting
	Capital Reporting
	Action Tracking Reporting
	A Consolidated View
	Dashboards
	Key Points
	Review Question
Chapter 14 Risk Appetite
	The Role of Risk Appetite
	Regulatory Expectations
	Implementing a Risk Appetite Framework
		The Risk Appetite Framework as a Strategic Decision-Making Tool
		Appetite Governance: The Board, “C-Suite,” and Business Lines
		Promoting a Firmwide Risk Appetite Framework
		Monitoring the Firm’s Risk Profile within the Risk Appetite Framework
	Monitoring Operational Risk Appetite
		Risk Capacity
		Operational Risk Appetite
		Operational Risk Tolerance
		Operational Risk Limits/Indicators
	Risk Appetite Today
	Key Points
	Review Question
	Notes
Chapter 15 Reputational Risk and Operational Risk
	What Is Reputational Risk?
	Reputational Impact
		Global COVID-19 Pandemic
		Banking and Fintech Scandals
		Stock Price Impacts
	Regulatory Oversight of Reputational Risks
	Reputational Risk Management Framework
		Drivers
		Governance
		Event Data Collection
		RCSA
		Key Risk Indicators
		Scenario Analysis
		Reporting
	Key Points
	Review Question
	Notes
Chapter 16 Operational Risk and Convergence
	Operational Risk as a Catalyst for Convergence
	Governance, Risk, and Compliance (GRC)
		Assessment Convergence
		Convergence of Metrics
	Converged or GRC Reporting
		GRC Tools
	Key Points
	Review Question
	Notes
Chapter 17 Best Practices in Related Risk Management Activities
	New-Product
Approval
	Supplier and Third-Party
Risk Management
	Legal Risk Management
		Legal Considerations in the Operational Risk Framework
		Capturing Legal Risks Using the Operational Risk Framework
	Regulatory Risk Management
	People Risk Management
	Fraud Risk Management
	Technology Risk Management
	Climate Risk
	Pandemic Planning
	Strategic Risk
	Key Points
	Review Question
	Notes
Chapter 18 Case Studies
	JPMorgan Whale: Risky or Frisky?
	Review Questions
	Notes
Appendix: Answers to Review Questions
	Chapter 1
	Chapter 2
	Chapter 3
	Chapter 4
	Chapter 5
	Chapter 6
	Chapter 7
	Chapter 8
	Chapter 9
	Chapter 10
	Chapter 11
	Chapter 12
	Chapter 13
	Chapter 14
	Chapter 15
	Chapter 16
	Chapter 17
	Chapter 18
	Notes
About the Author
About the Website
Index
EULA