Chapter 7 Flashcards
What are RCSAs?
Risk and Control Self-Assessments (RCSAs) are tools used to identify and assess the risks and controls within an organization. They involve subjective judgements in assessing likelihood and impact of risks.
How do internal event data benefit RCSAs?
Internal event data, through root cause analysis, can point to control failures and performance, challenging the scoring for the design and performance of controls, and improve assessments of both impact and likelihood.
What role do scenarios play in operational risk management?
Scenarios assess a firm’s vulnerability to exceptional but plausible events, helping validate outcomes of risk assessments by challenging estimates of likelihood and impact based on operational risk loss data.
How can event data validate risk and control indicators?
Event data validates indicators by indicating whether a preventative control is failing or a risk is more likely to happen. It also helps validate detective control indicators by showing how well they perform.
What is the importance of risk modelling with event data?
Loss events are essential for operational risk modelling and capital calibrations, used for severity or frequency assessments. However, they must be supplemented by external data and scenario analysis due to limitations like incomplete data and changing internal and external environments.
How should pending losses be treated in accounting?
Pending losses with a definitive financial impact that meet accounting standards may require a provision to be raised in financial accounts, and assigning loss events to appropriate business units can identify which cost centre the loss amount belongs to.
How does understanding event data influence risk appetite?
Understanding event data provides a basis for deciding on risk appetite and validating targets or triggers related to it. Reviewing past loss data can help assess a ‘mean’ or average for setting thresholds for acceptable to tolerable risk levels.
What are the limitations of internal event data?
Operational risk events often require manual reporting and may not be captured fully, leading to incomplete data. Near misses and gains are less frequently reported, and data may not be consistently categorised.
How do media reports and social media contribute to external loss event data?
Media reports and social media can provide insights into large risk events, offering causal analysis that can inform control reviews and business continuity plans. However, they should be treated with caution due to potential incompleteness or bias.
What is the value of competitors’ internal losses and consortia databases?
They offer insights into large risk events experienced by members, allowing firms to compare experiences and assumptions. However, direct comparisons are challenging due to differences in risk culture and control environments, and data quality can be variable
How should external loss event data be used in scenarios?
External data aids in creating realistic scenarios and understanding new or emerging risks. It is particularly useful for highlighting risks not previously experienced by the firm.
What is the purpose of benchmarking with external event data?
Benchmarking with external event data allows firms to compare their own risk assessments with those of peer organizations, identifying potential consequences not fully considered and improving internal reporting processes.
Why is risk identification important in the context of external loss event data?
External events offer a different perspective, prompting the reappraisal and prioritisation of risks beyond those already known or in the firm’s risk register.
How does new product analysis benefit from external event data?
External events and competitors’ experiences are crucial for understanding risks associated with new products, especially in new markets, helping to develop a framework of mitigating controls and ensure risks are contained within the firm’s risk appetite.
Why consider external data for setting risk appetite?
External data about competitors’ experiences can reveal risks that may affect a product’s alignment with the firm’s risk appetite, aiding in its consideration and adjustment.
