This presentations tells the story of the Risk-led transformation that HML has undertaken over the last 18 months. It outlines some of the key challenges, how they were overcome and the benefits delivered.
Service range• Financial services prime and subprime UK residential mortgages.• RSS2- rating special servicing• Over £43bn residential and commercial mortgages currently under management in UK and Ireland• 1,300 employees based across 3 UK sites, including a 450 seat call centre handling up to 13,000 calls per day
We recognised that there were gaps in our approach to Operational Risk Management…..•Silo operational risk processes.• Key Risks identification disconnected from performance & objectives• KRI’s definition – partial• Policy documents – limited governance and assurance• Lack of enabling technology• Poor alignment to strategy
Our approach, closed gaps and enabled us to meet ourchallenges...• Increased resources for assurance activity and “deep dive” work• Risk integrated with Strategy• Comprehensive set of Key Risks & Controls• Robust enabling technology to support the risk management framework• Comprehensive policy suite• Maturity model & effectiveness BSC to set change agenda
Risk Role in HML’s Strategic Execution To provide excellence in risk management to support the sustainable achievement of HML’s strategic objectives within its defined risk appetite. ADVICE OVERSIGHT CHALLENGE Business focused advice and Passionate focus on supporting Continuous improvement in risk oversight which adds value business excellence management practices Oversight, Challenge & Functional Leadership Delivered through highly skilled and positively motivated risk people, within an overall approach respected and valued by the business. 10
Risk Identification and Assessment The ERM framework is used to understand the links between what we want to do, what could stop us, and how we manage and monitor performance. All the data is held in our bespoke software solution ‘Insight’. What process do we need How do we monitor changes in What threats will stop us to control and what is the performance, risk and controls What are we trying to achieve our objectives? right level of control? effectiveness? achieve? Performance Risk Controls Indicators Objectives Key Risks Key Controls Key Indicators 13
Control Effectiveness The Control Self Assessment (CSA) quarterly certification process was introduced in Q4 2009 The process involves all key controls across all divisions being reviewed, capturing:- • the control purpose • an assessment of the effectiveness of the control • documentation of proof to support the certification Line 1 Line 2 challenge validation Key Certification Controls -Type -Certified effectiveness - Assessment score - Improvement action - Expected performance 14
Direct Operational Losses by Year The graphs opposite show the operational losses paid out from January 2007 - September 2011, by value and volume in the year the error occurred. • The improvement in performance is illustrated and there has been a 93% reduction in the value of losses that have occurred during 2010 compared with those that occurred during 2008. • From 2007, there has been a 56% reduction in the volume of losses that occurred during 2010 compared with those that occurred during 2008. In addition, the severity of losses has reduced over the years and, for the losses that occurred during 2010, 97% of the volume of these were for individual amounts that were less than £1k.
Audit ActionsThe graphs are based on all issues % of issues added each year by Graderaised from internal audits, externalreviews and internal compliance and 100%assurance reviews 90% 80%The percentage of issues that are rated 70%Significant / High risk has decreasedyear on year since 2008. In 2008 24% 60%of issues were rated Significant or High. 50%This reduced to 14% in 2009 and again 40%to 10% in 2010. So far in 2011 the % of 30% Low / Efficiencyhigh issues stands at 5% of the total Mediumissues added. 20% Significant / High 10%The percentage of issues rated medium 0% 2008 2009 2010 2011risk has also decreased from 48% in2008 to 45% in 2011. 17