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Operational Risk News
In spite of last year's devastating hurricanes, floods and other natural disasters, a new survey has found that nearly half of businesses still do not have a business continuity plan in place.
The UK's largest financial insitutions have "highly resilient" IT systems that could recover critical functions quickly after a terrorist attack or natural disaster, but firms could still be at risk because too many back-up sites are located in London, says the Financial Services Authority.
HSBC is estimating that up to half of its staff could fall ill or be absent from work, as Europe begins to understand the ramifications of the H5N1 bird flu virus.
Almost three in four financial institutions are looking to raise levels of reference data automation over the coming year as part of a concerted industry-wide effort to improve data quality, cut costs, and reduce risks, according to a global survey conducted by AIM Software and the Vienna University of Economics and sponsored by Reuters.
U.S. bank regulators on Friday said they would move forward in the process of writing rules to guide the financial industry's domestic implementation of the Basel II international capital accord.
The FSA have confirmed the need for high-level principles rather than prescription to govern the use test requirements for applications for the Basel II Advanced Measurement (AMA) Approach for operational risk.
There seems to be a good deal of confusion about the role of the compliance function vs. the role of the risk management function. In many organisations risk management has been subsumed into the audit organisation and there are a growing number of "risk management" consultancies that are offshoots of external auditing firms. Has audit become risk management and if not, what's the difference?
Financial institutions are progressing slowly in their Basel II compliance efforts. The majority of banks still are designing or building their Basel II solutions, including technology upgrades and organizational changes.
Boards of directors were heavily blamed by many for not nipping the Enron, WorldCom and other corporate scandals in the bud.
Fundtech Ltd. yesterday announced the results of a live interactive survey taken at its recent US Conference.
Basel 2 regulations are likely to have a knock-on effect across the financial sector and its technology suppliers. IT directors need to act now to stay ahead of the game.
Central bank governors and the heads of bank supervisory authorities in the Group of Ten (G10) countries met today and endorsed the publication of the International Convergence of Capital Measurement and Capital Standards: a Revised Framework, the new capital adequacy framework commonly known as Basel II.
Banks in Hong Kong are launching a two-stage authentication process for customers conducting internet transactions in an effort to minimize the risk of internet banking fraud.
Merchant losses from online payment fraud, which amounted to $2.6 billion in 2004, still accounted for just 1.8% of total sales.
Companies feel the areas most critically affected by policy and procedure documentation are compliance, quality and customer service, performance, security and risk.
Nicola Crawford and Norman Hoppe explore ways of improving operational risk management within today's complex businesses.
The US Securities and Exchange Commission has released the following statement on issues that arose during the first year of experience with the implementation of Section 404 of the Sarbanes-Oxley Act of 2002.
The agencies will take additional time to examine effects on the minimum requirements for risk-based capital.
In recent years, shareholders, pension holders, investors and society at large have suffered enormous loss as a result of numerous and catastrophic corporate failures. As the means of reducing the potential for such loss, improved corporate governance has become an inescapable must for businesses around the globe. Irrefutably, effective governance is only possible through a functional system of internal control, which itself is wholly dependent on a culture of sustained and proactive enterprise risk management.
Businesses should urgently check their systems for up to 15 critical security vulnerabilities which could enable hackers to access their networks.
A new paper 'Compliance and the compliance function in banks' has been published by the Basel Committee to provide basic guidance for banks. It sets out banking supervisors' views on compliance in banking organisations.
In the first quarter of 2005, subsidiary banks of the Bank of China successfully stopped 26 crimes, preventing over $8.45 million from being stolen.
As IT increasingly becomes an integral part of business success, firms are struggling to mitigate the risk of IT failure to service delivery.
The Sarbanes-Oxley Act of 2002 requires all publicly-traded companies to establish procedures for the receipt, retention, and treatment of complaints. It also requires a mechanism for the confidential, anonymous submission by employees regarding questionable accounting or auditing matters. The process must be open to employees, investors, analysts, and others; the law does not limit who must be able to lodge a complaint. The Audit Committee of the Board of Directors is responsible for these procedures.
There is a great deal of confusion when it comes to business continuity terminology. Continuity jargon seems to perplex business managers and practitioners alike. As in many cases, where business continuity is concerned, communication is the key. Poor communication can itself lead to continuity related issues. No less threatening is the case of miscommunication of business continuity principles. Indeed, the ensuing confusion can undermine the most carefully constructed business continuity programme.
The China Banking Regulatory Commission (CRBC) announced that 30 banks met the Basel requirement of an 8 percent capital adequacy ratio ( CAR ) by the end of 2004. Although the figure exceeded expectations, the country has over 100 other commercial banks and thousands of credit cooperatives that still have severe capital problems.
Corporate governance is the glue that holds an organization together in pursuit of its objectives while risk management provides the resilience. The challenge is for the organization to identify clearly the risks it must manage and to assign ownership and accountability for their effective management.
The Financial Services Sector Coordinating Council has issued a paper identifying critical issues for industry participants to address in preparing the US financial system for potential disruption caused by acts of terrorism, natural disasters or cyber attacks.
Options and derivatives trading has led to a number of major corporate disasters, from Barings Bank to Long-Term Capital Management and from Enron to WorldCom. Is technology a help or a hindrance in pre-empting future corporate collapses, asks Chris Skinner?
To succeed with a Sarbanes-Oxley implementation, most companies find they need to align several related efforts: Governance, Risk Management, Compliance, and Security. In this approach, Governance does not exist for its own sake. Instead, it exists to help mitigate known risks and to prevent issues from occurring, to help ensure compliance to external and internal standards and requirements, and to provide a process-focused complement to electronic security efforts.
Many CIOs are now faced with the challenge of managing enterprise risks for the simple reason that businesses depend more than ever on IT to be able to function. Yet enterprise risk management (ERM) is complex and requires a culture change that is frequently resisted by organizations because people view identifying risks as a form of criticism.
Until recently organisations were able to put operational risk and information security into separate, watertight compartments. Operational risk sat in the audit department and probably reported to the CFO. While information security (if such a function existed) sat in the IT department and reported to the CIO (eventually).
Security experts are praising Sumitomo Mitsui Banking Corp. for admitting that it was the target of a failed $424 million hacking attempt.
Institutions are being directed to meet compliance deadlines as regulations are still being written, leaving them uncertain whether the approaches they take and the expenditures they make will ultimately be within the rules.
The Sarbanes-Oxley Act of 2002 (SOX) impacts on both user and service organisations. In this paper, Luc Klein MBA, senior business consultant in LogicaCMG's finance business consulting unit describes the options organisations have for compliance, the specific issues organisations must be aware of, and why time is running out for non-US companies listed in the United States.
Losses by UK banks from non-plastic related fraud totalled GBP 107.6 million in 2004 according to figures released today by the British Bankers' Association (BBA). The figure represents an increase of 11 per cent over the previous year.
Merrill Lynch was fined $13.5 million by the NYSE yesterday due to the company's brokers engaging in improper timing of mutual funds.
The complex and copious amounts of data stored on corporate networks after the enactment of the Sarbanes-Oxley Act may be creating greater opportunities for fraud, according to IT analysts.
Fraud prevention managers now have a new resource to help them tackle the threat of increasingly sophisticated financial crime. New guidance produced by the British Bankers Association (BBA) and MHA Consulting (MHA) will help financial institutions protect themselves from fraudsters, limit the associated financial losses, meet legal obligations under the Proceeds of Crime Act and, ultimately, protect customers from becoming victims.
Andrew McCrackan explores the relative positioning of business continuity and risk management within organisations and explains why this is an important debate.
China 's major banks are starting to appreciate the importance of implementing the Basel II global accord on bank capital standards. Although the nation's banking regulators realize how difficult it will be for Chinese banks to comply with the new capital requirements, they are eager to make this happen.
The gap in understanding between IT and the wider business is closing as companies learn the lessons from disappointing IT investments made during the late 1990s and early 2000s, according to a survey published this week.
A central debate in the effort to comply with Sarbanes-Oxley particularly sections 302 and 404, is whether operational benefits will outweigh the costs. A new survey of 220 businesses conducted by RevenueRecognition.com and International Data Corp. suggests that while costs are front loaded, there is proportional value once companies get through the full compliance process. However, a "compliance chasm" exists - companies that crossed it achieved more effective results at less cost.
The Joint Forum has today released a report examining trends in outsourcing in the financial sector. Outsourcing in Financial Services spells out the potential risks that outsourcing activities can pose to financial sector firms, while recognising the substantial benefits that outsourcing can provide. To assist firms and regulators in considering their outsourcing activities, the report presents a set of principles outlining issues that should be taken into account in the process.
While concern over governance and compliance issues has been a barrier to the decision to outsource finance functions, many companies that have outsourced finance functions say that they have actually achieved greater control over their governance and compliance, according to a report released yesterday by Accenture.
Can any quantifiable value be derived from operational risk management [ORM]? The question resonates in the minds of bankers all over the world. And for good reason, with the New Basel Capital Accord [Basel II] initiative to bring order to international capital markets and level the playing field for banks becoming operational in 2007. It requires that banks thoroughly address operational risks and develop internal solutions.
The large number of recent filings by public companies pointing out shortfalls under Sections 302 and 404 of the law provides evidence of this focus on internal controls.
Last week the U.S. Attorney's Office for the Northern District of California announced that Thomas Trauger, a former partner of Ernst & Young and certified public accountant licensed in the State of California, was sentenced to 12 months in federal prison, ordered to pay a $5,000 fine and undergo two years of supervised release for his part in altering and falsifying accounting records.
The past few years have seen a slew of regulations - including Sarbanes-Oxley, International Accounting Standards and the forthcoming Basel 2 - that have significant implications for IT systems.
The Financial Services Authority has issued a consultation paper on the European Union's Capital Requirements Directive for Basel II in an effort to aid firms as they undertake extensive systems and risk management changes to comply with the new regulations.
U.S. banks face a huge task in putting new global bank safety rules in place over the next three years and should begin preparing for them as quickly as possible, U.S. bank regulators said on Thursday.
A study sponsored by Reuters and conducted by AIM Software and the Vienna University of Economics shows that improving data quality is considered a key issue for risk management.
The FSA has today published its Financial Risk Outlook 2005, which details the risks that it sees facing the financial sector and its customers. The Outlook sets out the background against which the FSA sets its priorities for the year, which will be detailed in the Authority's Business Plan to be published next week.
The Committee on the Global Financial System (CGFS) yesterday released a report entitled "Stress testing at major financial institutions: survey results and practice."
IT directors across Europe face a raft of compliance requirements but many lack confidence in their ability to meet them, a survey of 400 European IT directors has revealed.
Indonesian and Sri Lankan banks' business continuity and disaster recovery programs made it through the tsunami disaster.
Financial industry regards data quality as a key issue for risk management
Sarbanes-Oxley is intended to improve the transparency with which public companies in the US conduct their businesses, and now European companies are feeling pressure to comply with its requirements. In Europe, growing resentment at the unwanted pressure being forced on Europe's businesses is persuading some firms to take drastic action, with some even threatening to de-list from US stock exchanges.
Islamic banking has probably never been so popular as it is today. A number of countries with predominantly non-Muslim populations are setting up Islamic banks or revisiting regulations to accommodate Islamic banking.
Four out of five major financial firms now have a chief risk officer, but the quest for enterprise risk management remains an elusive goal, according to a global industry survey conducted by Deloitte.
Outdated architecture of legacy systems, high maintenance costs and competitive pressures are forcing banks to reevaluate their technology investments.
The consultants at A.T. Kearney who compile a widely followed annual survey of the world's actual and potential off-shore locations for business-process outsourcing (BPO) expect to make some changes for 2005.
Seven in ten chief information officers at UK companies believe their audit committees are ignoring the risks posed by IT to their business, new research has found.
What developments can we expect to see in the coming year? David Honour gives his top ten predictions.
Despite over 90 percent of UK companies claiming to depend upon collaborative and partnership activities of some kind to improve their product or service offerings, many organisations are in danger of wasting such resources and time because they are approaching collaboration inefficiently and half-heartedly and are ignoring the potential risks.
Faced with growing exposure to risk through mega mergers, off-shoring, outsourcing, more stringent regulations and an increased volume of lending, 81 percent of global financial services institutions have established the position of chief risk officer (CRO), according to Deloitte's 2004 Global Risk Management Survey. That number has increased from 65 percent since the last survey was conducted in 2002.
A 2nd U.S. Circuit Court of Appeals panel has ruled that securities fraud plaintiffs whose claims expired before the July 2002 enactment of the Sarbanes-Oxley Act are not entitled to revive their claims.
The explosive growth in online fraud and the impact of tough new US regulations were on the minds of information security executives who gathered in New York this week for the second annual CSO Interchange.
The US Securities and Exchange Commission (SEC) has subpoenaed a number of firms that provide share purchase and sale data to discover whether their employees have tried to bribe back office staff at banks for confidential stockholder data.
The need to improve internal controls in response to regulatory demands remains a top priority among CFOs at the nation's largest corporations, and one that will continue to profoundly impact corporate infrastructure, according to Capgemini and CFO Research Services Annual CFO Study.
New research by Financial Insights examines the Basel II implementation guidelines of Asian regulators and compartmentalizes Asian bank preparations for regulatory overhaul. The report covers best practices in credit and operational risk for implementing Basel II, significant challenges in bank preparations to implement the accord, and Financial Insights analyst opinions on the evolution of the capital framework.
The UK Trade and Industry Secretary Patricia Hewitt yesterday announced the way forward for the government's new Operating and Financial Review (OFR), which aims to help strengthen corporate governance in British companies. The announcement follows a period of public consultation on the regulations.
Attempted check fraud at the nation's banks rose to $5.5 billion in 2003, according to the latest American Bankers Association Deposit Account Fraud Survey Report.
Control Risks Group, the international business risk consultancy, has published RiskMap 2005, its annual study and forecast of political and security risks across the globe. Although the headlines in 2005 will continue to be dominated by the ongoing 'war on terror', the report argues that this may only serve to distract business from the more direct and critical challenges they will face around the world.
The SEC voted on October 26th to finalize rules proposed earlier this year to require hedge funds to register as investment advisors and establish compliance policies and procedures. According to the Commission, the rule will enable more thorough collection of information on hedge fund advisors and examination of their operations in order to root out compliance problems earlier and deter fraudulent activities. Hedge funds will have until February 2006 to comply with the rule.
The race is on to find a solution to outstanding issues such as counterparty risk, double default and the treatment of illiquid assets on trading books before Basel II is in regulation.
When a company goes dark it can no longer be listed on a big exchange like the NYSE but can continue to trade on the Pink Sheets, an electronic quotation medium for over-the-counter stocks. Stocks that list here do not have to meet minimum requirements or file with the SEC.
The primary purpose of the postponement is to allow additional time and opportunity for accelerated filers and their auditors to focus their efforts on complying with new requirements regarding internal control over financial reporting that were mandated by Section 404 of the Sarbanes-Oxley Act of 2002.
DUBAI - Experience from around the world proves that good risk management protects companies from potential adverse impacts, also confers competitive advantage enabling them to be more entrepreneurial, leading to higher profits.
Firms with fiscal years ending after Nov. 15th, including financial giants such as Morgan Stanley, Goldman Sachs Bear Stearns and Lehman Brothers are now required to prove in their annual reports that they've tested and documented their sales, assets and liabilities in a way that complies with the Sarbanes-Oxley law of 2002.
The Institute of Chartered Accountants in England and Wales is committed to helping accountants and businesses with the needed systems for reporting incidences of money laundering.
IT compliance projects for the Basel 2 code on risk management should use software components and integration technology instead of relying on an unwieldy datawarehouse, according to the global head for risk IT at investment bank Dresdner Kleinwort Wasserstein.
India's decision to implement Basel-II norms from December 2006 will improve banks' risk management system and provide them incentives for meeting the prudential norms, said Basel Committee on Banking Supervision Chairman Jamie Caruna.
People involved in organised crime are applying for jobs in finance firms so they can commit fraud, the Financial Services Authority has warned.
Three years of effort by the Office of Government Commerce has done little to alter the basic weaknesses of major public sector IT projects, according to the National Audit Office.
As they brace for the Sarbanes-Oxley Act to kick in next week, U.S. enterprises are keeping tabs on escalating data management requirements associated with e-mail, messaging and recovery processes.
Most banks in Asia's leading countries are lagging in preparations for the implementation of the new Basel Accord, according to The Asian Banker Research. Basel II compliance by the deadline of year-end 2006 is uncertain in Asia. The research is based on interviews with the 40 largest banks across the region.
There is no way for IT directors to avoid the impact of regulation. Suppliers are of limited help but careful planning can reduce workloads without sacrificing quality
The Australian Prudential Regulation Authority (APRA) has announced that it will implement the Basel II framework in Australia from year end 2007. Authorised deposit taking institutions (ADIs) will be required to meet the capital requirements of the Framework from 1st January 2008 and their prudential reporting for the quarter ended 31st March 2008 will be based on the requirements of the framework.
Banks based outside the world's largest economies might struggle to put in place the new Basel 2 capital standards, which govern how much money lenders must set aside to cover loans, Fitch Ratings said yesterday.
Measuring how well your company will survive a catastrophe will soon be easier, as the British Standards Institute's PAS 56 moves towards becoming a recognised standard. In just over a year, and following consultation, the standard will acquire the status of a code of practice, similar to the Highway Code or the Health & Safety Code.
The Securities and Exchange Commission (SEC) announced yesterday that it issued an order further extending until March 31, 2005 , the compliance dates for banks with respect to certain broker registration requirements contained in the Gramm-Leach-Bliley Act (GLBA).
Market entities representing approximately 96% of US futures trading volume participated in the first industry-wide disaster recovery tests earlier this month.
According to Malcolm Knight, general manager of the Bank of International Settlements (BIS), measuring the risk of the global financial industry requires a macro orientation. The assumption that the stability of the system is simply a consequence of the soundness of its individual components can no longer hold. Knight spoke at a conference sponsored by Socit Universitaire Europenne de Recherches Financires, a Vienna-based financial organization.
IT executives face more risks than ever to system security, their budgets and corporate reputations. But the most they can hope for is to focus the most resources and technology investments against the worst threats and hope the lesser concerns don't leap up to bite them.
The US Government Accountability Office has ripped into the Securities and Exchange Commission and top trading firms for failing to adequately protect their operations from risk of disruption by terrorist attacks or other disasters.
Failure to regulate operators of "shell companies" that allow criminals to hide ill-gotten assets is making London a haven for money-launderers, an influential report will warn on Friday.
The Financial Services Authority is to step up its examination of bank anti-fraud safeguards in an effort to cut down on soaring levels of financial crime.
At the world's biggest insurance broker, Marsh & McLennan, has hired Freshfields, the law firm, to conduct a thorough investigation into whether its London operation is guilty of "price fixing and collusion".
A surge in financial rules has created 40,000 jobs for compliance officers.
A study of 1,700+ banks from 63 countries has revealed that improving data quality is regarded as a key issue for risk management - and that regulatory requirements including Basel II and Sarbanes-Oxley are driving substantial investments in IT.
SEC charged Qwest Communications International Inc., one of the largest telecommunications companies in the United States, with securities fraud and other violations of the federal securities laws.
NEW YORK (Reuters) - Three top Citigroup Inc. executives, including Vice Chairman Deryck Maughan, are leaving the world's largest financial services firm in the wake of a scandal at its Japanese private banking unit.
The rush is on because many companies failed to grasp the amount of work that would be required and because of miscommunication between IT managers and the finance departments that typically run Sarbanes-Oxley Act compliance projects
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