Operational risk – the evolution on an AMA ready solution

Operational risk management solutions should therefore offer value far beyond an opportunity to reduce regulatory capital. Implementing an effective operational risk management solution can help better control risk exposures, reduce losses and increase customer and employee satisfaction thereby improving financial performance and enhancing shareholder value.

OpRisk Evolution gives you the visibility and foresight to recognise and leverage risk-related opportunities. The solution was born from more than 10 years of collaboration between List Group Spa and leading institutions in the Italian financial sector, and has been enriched by the experience of a leading international consulting company in quantitative analysis and scenario analysis.

OpRisk Evolution is a complete web-based suite of fully integrated modules, providng an institution-wide view of losses and enabling proactive management of operational risk, no matter if the risks lie in resources, systems, processes or external events.

Whether you have decided to go with the standard approach or the advanced measurement approach (AMA), you can choose the modules that you want. The solution includes the following modules:

The Loss Data Collection module allows collecting and organising the loss events information in a structured and coherent way, organising them in Business Line and Event Type in compliance with the Basel II Accord.

Quantitative Analysis module uses historical losses suffered by the bank as input data. Users, via QA friendly user interface, can define a selection of data over which the analysis will be conducted, via the definition of a specific period of time, business line and event type. Frequency and severity fitting are conducted separately. Modeling of severity distribution body and tail can be split, via a threshold definition.

OpRisk Evolution suite ensures a wide range of statistical models and flexible and strong simulation instruments for effectively calculating the capital at risk.

A Montecarlo engine is then used to calculate the aggregate loss distribution and allows insurances schemes integration when doing calculation.

The Scenario Analysis is an auto-evaluation expressed by each business unit on its own operational risk exposure. SA process is composed by a phase of survey’s creation, survey’s compilation and the final phase of analysis. The process ends with reporting activity.

Scenario analysis is relevant for business lines and loss event types where internal data and assessments of the business environment and internal control factors do not provide a sufficiently robust estimate of the financial institution’s exposure to operational risk.

Thanks to an agreement between List Spa and a leading international consulting company, which has placed its experience in scenario analysis at disposal of List, OpRisk Evolution applies a quantitative analysis to the personal evaluations expressed by the proper operators, in compliance with Basel II Accord.

OpRisk Evolution gives the possibility to analyse both single answers and aggregations. Then, a dedicated calculation engine applies statistical and quantitative techniques to subjective estimates producing expected loss and unexpected loss.

The Scenario Analysis module also gives valuable information to support management in strategic intervention and mitigation policies. Quantitative Analysis and Scenario Analysis modules produce homogeneous output (EL and UL distributions, CaR figures), which can then be integrated using Bayesian techniques to result in a unique EL and UL distributions and CaR.

The Business Environment and Control Self-Assessment module assists the Line of Business Manager to identify key processes and their associated risks, controls and action plans. They can also help to assess in a qualitative manner, the impact and likelihood of risk. It should reflect both the positive and negative trends in risk management within the financial institution as well as changes in a business activities that might increase or decrease risk.

OpRisk Evolution suite gives another important major advantage: process traceability. The systemic traceability of all the operations is particularly significant as internal or external audit can review the process leading to the final figure (the capital at risk).

OpRisk Evolution represents a highly flexible and adaptable solution: it can be rapidly and easily integrated into environments where other solutions have already been adopted. This is the case with institutions that have already invested in solutions that can no longer fulfill the increasing needs of a bank. Thus, the adoption of OpRisk Evolution allows a bank to optimise any investment that it has already made.

Thanks to its web-based user-friendly interface, the solution is suitable for any organisation, as it can be easily distributed via intranet and/or internet within a whole structure or part of it (individuals, departments, branches, group companies). Moreover, the fact that it has the same interface for all users (functions are enabled on the basis of set permissions) allows the diffusion of a consistent language across the entire financial institution, and promotes at the same time the culture of risk management.

OpRisk Evolution provides a set of standard reports that can be easily customised: it can interface with well known reporting tools (i.e. Business Object, Crystal Reports, Cognos, etc.)

Individual users can choose the preferred language without affecting others’ settings, and their selection can be change at any time.