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Notes on a presentation by Alexis Keivkovich from McKinsey on Operational Risk at the RiskMinds USA Boston

Posted by Sohayla Fitzpatrick on June 20, 2013 at 14:42
Alexis:The OCC deems ops risk at the top of safety and soundness.Legacy systems that don't speak toMisaligned incentivesPoor oversight of third partiesProcedural breakdown of processesHow the CROs to identify and elevate the right decision pointsChallengesChallenge 1Op risk is a different animal.Opportunity 1Treat op risk as unique. Root cause and scenario vs statistical approachDiffuse decision making vs a few specific choke pointsUncapped risk vs capped risk (loans) the tail can be very long other similar things are looming in the background and a signalFewer more heterogeneous data points vs more and more homogeneous data points.Challenge 2Emphasis is based on measurementOp risk has not been able to prove its valueInstitutions spend time on measuring and don't get to understand the output and feel like they can't prove value. Which controls are important most? The ability to turn all the data into meaningful controls to be tangible. Of the 3000 controls which 100 are most important or which 20 we haven't thought about.Opportunity 2Identify the regulatory issues at process level.Challenge 3It is decentralized and makes it difficult to understand risksThe nature of businesses and how op risk presents itself variesTherefore making direct correlations is hard.Opportunity 3Ensure consistency in evaluation and measurement. Risk heat map by unitChallenge 4So who's responsible? Ops, unit, QA ahead of audit, audit, business /product leaders, corp risk, compliance, otherOpportunity 4Rigorously clarify roles and responsibilitiesChallenge 5Culture is an afterthought, too soft to tackle, all about incentives,Opportunity 5Culture is at the heart And can be shaped by leaders. Break it down so that you can id and measure it and have a conversation.Transparency, do I know what my risks areAcknowledgement of risks, do we talk about them, denial, shoot the messengerResponsiveness, proactive and reactive.Respect, the degree to which firm thinks that risk is everyone's business. The key is to have a taxonomy.Recognize op risk is unique build strong muscle to deal with itMake it decision basedEnsure consistency in elevation and managementRoles and responsibilityCultureIf the last 5 years have been all about credit ris, The next 5 years op risk will be at the hear of the risks
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