Chapter 25 - Management of operational and other risks

Question 1

Key characteristics of controls (operational risk)

Answer 1

Similar to COMATES

Neither objective nor neutral
Focussed on results
Required for measurable and non-measurable events
Standardised for efficient communication
High quality - improve management
Few, rather than many
Meaningful and appropriate
Timely, so as to give sufficient warning
Simple

Question 2

Outsourcing considerations

Answer 2

Regulatory environment

Reduced control

Third party issues:
Competancy
Legal agreement
Financial standing
Failure and risk controls in place

Question 3

Management of operational risks (short list)

Answer 3

Business continuity and crisis management
Technology risk
People risk
Process risk /change management
Model risk
Data risk
Reputational risk
Other risks

Question 4

Management of operational risks (detailed list)

Answer 4

Business continuity and crisis management
*Develop plan for interrupted business; test regularly; extends to safeguarding reuptation; consider consequential loss insurance (during interruption of bus)

Technology risk
*Keep systems updated; Maintenance; Thorough testing; Security software

People risk
*HR practice-recruitment, retention, talent management; Contracts; Induction; Insurable interest

Process risk /change management
* Undertake pilot studies; Stress testing; Careful deployment with user education; Design systems that can be easily maintained. enhanced, upgraded

Model risk
*Docuemented clearly, clear audit trail; Use model for intended purpose only

Data risk
*Limit possible entry to what is valid; check data entries; re-check data on transfer

Reputational risk
*Sound ERM framework; BC and CM plans; Strong relationships with key stakeholders

Other risks
*Crime; Bias; Regulatory/Legal

Question 5

Management of liquidity risk

Answer 5

Varying investment strategy & diversifying sources of funding

Using swaps

Contingency funding (eg credit from bank or high quality assets)

Monitoring ability to raise capital

Question 6

Activities designed to reduce or elimate feedback risk (spread of risk through financial system)

Answer 6

Invest only in exchange-traded instruments - pool/diversify counterparty risk

Suspending trade on stock exchange with circuit breakers if there is a large market movement

Governments may intervene

Regulations may require additional reserves

Avoiding regulations that increase pro-cyclicity

Physical separation of types of business