HML—which specialises in financial outsourcing for financial institutions in the U.K. and Ireland—needed to improve operational risk management to avoid unnecessary losses and bolster compliance. The firm relied on spreadsheets and disparate databases to analyse performance and risk, but recognised the need for a more rigorous approach. This led to Microsoft Certified Partner Stratex Systems delivering StratexPoint—a risk management, governance, and compliance solution designed to meet the demands of the executive team, as well as the expectations of the Financial Services Authority. StratexPoint is powered by Microsoft Office SharePoint Server technology and was central to supporting a “risk-led” transformation at HML, with an improved risk framework and new focus on key controls. As a result, the firm has significantly reduced operational losses, as well as its regulatory capital.
SITUATION
Financial outsourcing specialist HML is a wholly owned subsidiary of the Skipton Building Society in the United Kingdom (U.K.), working for more than 30 U.K. and Ireland-based financial institutions. On behalf of its clients, it manages more than 45,000 financial products and assets of approximately £45 billion.
In January 2008, HML appointed a new Chief Executive Officer who wanted to transform the business—in particular, the role of risk management in the firm. Gillian Weatherill, Head of Operational Risk at HML, says: “Our mission is to make risk management central to strategic and operational decision making. In doing so, our goal is to enhance profitability, lower operational losses, and reduce the economic capital held against the business. This initiative was also about laying the foundation for state-of-the-art, next-generation risk management capabilities, which support the needs of all staff and clients.”
Soon after Weatherill joined HML—which employs 1,600 people—the Financial Services Authority (FSA) carried out a routine site visit. This corresponded with a time of major market disruption due to the onset of the credit crunch and subsequent economic downturn. The site review resulted in the FSA recommending a Risk Mitigation Programme for HML aimed at enhancing the operational risk capabilities within a strict and challenging timeframe. Weatherill says: “We were already fully engaged with this work. We had 12 months to implement a major risk-driven change programme, much of which was scoped before the FSA visit.”
The operational risk processes inherited by Weatherill were disparate and silo based. Most involved using early versions of Microsoft Access database software and Microsoft Office Excel spreadsheets, which were updated periodically. A few people in the central risk team also used an existing operational risk solution. In a rapidly changing market—and with the economic downturn significantly impacting mortgage applications and arrears management— HML required a more agile, flexible, and practical solution. Weatherill says: “We needed information to be visible immediately, so our employees and managers could assess risks easily without tracking through numerous spreadsheets.”
SOLUTION
After considering a number of options, HML selected Microsoft Certified Partner Stratex Systems. Its software solution StratexPoint brings together performance and risk management into a single, integrated solution.
Developed using Microsoft Office SharePoint Server and Microsoft SQL Server technology, StratexPoint combines the qualitative elements of performance and risk management with quantitative data. It is helping HML drive strategic execution and manage the trade-off between risk and reward in its services.
Andrew Smart, Founder and Managing Director at Stratex Systems, says: “StratexPoint provides enterprise-level capabilities for HML to monitor and analyse all of its organisational governance, objectives, risks, and controls using assessments and key indicators. With Microsoft, we want to drive a new approach to managing strategy, risk, and compliance.”
StratexPoint uses a range of features in Office SharePoint Server, including security, workflow, document management, and collaboration. It also offers powerful SQL Server reporting—along with its inherent application logic and visualisation techniques—to help HML align risk appetite, risks, and controls with its strategic objectives.
While the solution may ultimately be extended to as many as 2,000 users, Weatherill says she aimed to implement it to approximately 500 users initially, with different levels of permission for employees depending on their roles.
BENEFITS
HML is now aligning its risk exposure with its risk appetite. It has both reduced operational losses and improved handling of risk-related losses. FSA expectations have been met and the amount of economic capital held against the business has been cut.
Operational Losses from Frequently Occurring Events Fall Significantly
Using a combination of qualitative and quantitative dimensions, the risk management software is helping HML to define its risk appetite threshold. This measure is the amount of exposure or potential adverse impact from an event that the organisation is willing to accept or retain.
The company’s governance processes must focus on value, not just controls—especially given the lingering effects of the economic downturn. Weatherill says: “In the first year of our deployment of StratexPoint, we’ve considerably reduced the volume of frequently occurring operational loss events. It has improved our profitability.”
Economic Capital Held Against the Business Reduced
It is often difficult for managers to understand how capital is invested in financial institutions to support operational risk, which, in turn, needs definition. StratexPoint is helping HML drive a return-on-equity discipline into individual transaction decisions through greater use of objective risk-based pricing.
Weatherill says: “As a result of implementing StratexPoint, HML has managed to significantly reduce its economic capital—the amount held against risk necessary to survive in a worst-case scenario.”
Software Helps HML Meet Compliance Targets Agreed with Regulator
StratexPoint is unique in supporting leading best practice approaches to performance and risk management within an integrated, collaborative solution.
Weatherill says: “Stratex Systems helped HML improve regulatory compliance at every step during the 12-month window to meet the targets set by the FSA Risk Mitigation Programme. Currently, we’re using many new document management and risk events processes with increased security requirements. Our systems are more robust than ever before.”
Sai Sireesh, Director for Risk and Compliance Solutions at Microsoft, adds: “The HML vision of integrating business strategy, capital allocation, and risk management is truly innovative. StratexPoint is uniquely positioned to implement this vision.”
Risk-Aware Culture Embedded Within the Business
The new performance and risk management software has enhanced strategy execution at HML. The improvement is not only in the quality and organisation of governance, performance, and risk-related procedures and policies, but also in the time saved.
A risk-aware culture is now fully embedded in the business. More importantly, it does not hamper new initiatives. Weatherill says: “None of our requirements have been compromised and now everything related to strategy execution is easily accessed in one place, which is significantly improving efficiency and performance.”
This is a certified Microsoft Case Study. View here: http://www.microsoft.com/casestudies/Microsoft-Sharepoint-Server/HML/Outsourcing-Firm-Meets-Compliance-and-Significantly-Lowers-Operational-Loss/4000009984
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