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Enabling Effective Conduct Risk
The StratexSystems webinar focused on effective conduct risk management and the integration of strategy with risk management. It highlighted the FCA's regulatory approach and emphasized the need for firms to prioritize customer outcomes, cultural change, and strategic alignment in risk-taking. The presentation also introduced their risk-based performance management solution that streamlines and enhances organizational performance while meeting FCA requirements.
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Enabling Effective Conduct Risk
- 1. StratexSystems webinar Enabling EffectiveConduct Risk Management 19/02/2014
- 2. Introductions CEO & Co-founderof StratexSystems, the leading provider of integrated strategy & risk management solutions on the Microsoft SharePoint platform 15 years plus in strategy and risk management 2006/07 -12 month / 21 organisation research project into the integration of strategy and risk management 2008 - Created the Risk-Based Performance Management methodology during various strategy and risk related engagements in the city Page 2
- 3. About StratexSystems Our Mission Toprovide an integrated strategy and risk management solution which enhances strategy execution, improves capital efficiency by 15% and reduces operational losses 25% while providing 100% confidence that your business is operating within appetite. One client‟s results “Since HML commenced its initiative to implement an enterprise-wide risk management framework in March 2008, we have reduced our Pillar 2 capital by 81.2% while delivering a 94% reduction in the value of errors and a 63% reduction in the volume of errors” – Head of Enterprise Risk, Homeloan Management Limited Page 3
- 4. The creation ofthe FCA introduced a new regulatory approach FCA Objective To make relevant markets work well so consumers get a fair deal. 1. Outcomes 2. 3. 3 Pillars Regulatory Approach Page 4 Consumers get financial services and products that meet their needs, from firms they can trust; Markets and financial systems are sound, stable and resilient, with transparent pricing information; and Firms compete effectively, with the interests of their customers and the integrity of the market at the heart of how they run their business. Firm Systematic Framework (FSF) Event-driven work Issues and products
- 5. The creation ofthe FCA introduced a new regulatory approach… and some confusion! But what is Conduct Risk? The Risk of a firm treating its customers unfairly and delivering inappropriate outcomes What is Conduct Risk Appetite? The level of Conduct Risk a firm is willing to take to achieve its strategic objectives "we do not have a master definition of 'conduct risk‘ FCA Page 5
- 6. What has theFCA been saying to the market? Page 6
- 7. What has theFCA been saying to the market? Page 7
- 8. What does theFCA really want from firms? “Good profits” A strategic approach with strong senior management and board engagement Cultural Change & Accountability Page 8 Customers at the heart of your firm‟s business model and strategy Not a narrow focus on compliance to rules
- 9. How to meetFCA requirements…and enable effective conduct risk management (and strategy execution) Risk-Based approach to managing your firm Proven approach to drive & sustain change Enabling software solution which embeds a Risk-Based approach Page 9
- 10. Taking a Risk-Basedapproach to managing your firm We wrote the book on integrating strategy & risk management Page 10
- 11. Risk-Based Performance Management(RBPM) is a holistic and integrated approach to strategy execution and risk management What are we trying to achieve? What is our Risk Appetite? Strategy Management Appetite Are we on track? Performance Management Risk Management Governance & Communications Culture Page 11 Are we operating within appetite?
- 12. The Risk-Based PerformanceManagement (RBPM) methodology is based on seven management disciplines Business Drivers Capital Income 2. Manage Performance 1. Set Strategy Appetite Page 12 Share Price ? 5.Governance 4. Appetite Alignment 3. Manage Risk Shareholder Value Reputation Appetite 7.Culture 6.Communications Economic value add Profit ?
- 13. Central to thisintegrated model for Strategy and Risk Management is the Strategy Map Page 13
- 14. Financial Customer Internal Process Learning & Growth Page 14 Increase Shareholder value The Strategy Map articulates how an organisation creates value Objective Statement of what strategy must achieve and what’s critical to its success KPIs How success in achieving the strategy will be measured and tracked Targets The level of performance or rate of improvement needed Initiatives Key action programs required to achieve Priorities Sustainable Growth Objective KPIs Targets Initiatives Increase Investment Returns by 25% Increase Investment Returns by 25% YTD % Increase in investment returns 25% Implement new portfolio mgt system “their ROI is aligned to my appetite” Increase Retention of competent staff by 10%
- 15. Financial Customer Internal Process Learning & Growth Page 15 Increase Shareholder value However, to create value, risktaking must be aligned to strategy… Objective Statement of what strategy must achieve and what’s critical to its success Appetite How much risk are we willing to run to achieve the objective? Exposure How much risk are we currently running? Alignment Is our current risk-taking aligned to appetite? Sustainable Growth Objective Appetite Exposure Alignment Increase Investment Returns by 25% Increase Investment Returns by 25% Moderate High Over-exposed “their ROI is aligned to my appetite” Increase Retention of competent staff by 10%
- 16. Financial Customer Internal Process Learning & Growth Page 16 Increase Shareholder value “their ROI is aligned to my appetite” Sustainable Growth Increase Investment Returns by 25% Increase Retention of competent staff by 10% Effective risk management also supports value creation and protection... Objective Statement of what strategy must achieve and what’s critical to its success The threats and opportunities (risks) exist which may impact achievement of objectives Objective Risks Increase Investment Returns by 25% Unexpected changes in interest rates Unexpected Equity movements Risks Thresholds The appetite and tolerance thresholds used to monitor risk Mitigation The activities undertaken to manage risk Thresholds Mitigation Appetite Tolerances Controls Initiatives Policy & procedures Processes
- 17. Having clear andachievable financial Drive Shareholderis critical to ensure the firm is objectives value Deliver Revenue and will be around to provide on-going service sustainable Control Costs Growth Customer Financial The Strategy Map can be used to demonstrate the role customer outcomes play in the firm‟s strategy “We have By convention,are clear customer outcomes are expressed“Their solutions you would like to hear is phases “Their fees quick, convenient “We received good continue to and customers use to describe your firm and meet our access to our value” yourfair” products/services financial changing needs” Internal Processes info” Deliver outstanding Learning & Growth Ensure effective To deliver financial and customer outcomes, we must be clear about the key processes customer service Continuously seek to Complaints Drive sales execution @ POS understand client handling which will enable us to deliver those outcomes. needs “We leverage our data to “We sell the right “We align our Underpinningpositivedelivery of the key processes,the right the customer financial and customerappetiteincentivesis outcomes deliver products, to to our & desired outcomes people, the right time” behaviours” the organisational culture. Page 17 Information Capital Cultural Capital Human Capital
- 18. The four perspectiveRisk Map can give greater insight into the risk profile, specifically from a Conduct perspective 1. Risks related to Financial outcomes 1 2 2. Risks related to Customer outcomes 3. 4 4. What are our process risks and how are they changing? Are we operating within our risk appetite? Risks related to Culture Page 18 Are we operating within our conduct risk appetite? What are the current and emerging conduct risks? Risks related to Internal Processes 3 Is our firm sustainable? Will we be around to provide ongoing service and product support? What are our culture risks and how are they changing? Are we operating within our risk appetite?
- 19. Appetite Alignment Matrixis one of our key innovations and a key tool for monitoring the alignment of risk-taking to strategy Enables monitoring of the alignment of risktaking to strategy Enables the monitoring of risks which are outside of appetite Are we operating within (your conduct) Appetite? Do you have the „tools‟ to know? Page 19 Also shows where we are taking too much and not enough risk Changes the risk conversation
- 20. Like objectives atthe strategic level, a risk and controls framework can be wrapped around processes Processes Risk Appetite Actions Key Risks KRIs KPIs Actions From a Conduct Risk perspective, define, manage and monitor key customer processes, such as New Product Development, Sales Execution, Customer service, Complaints handling etc. Assessment Events KCIs Page 20 Key Controls Actions 20 Assessment Certification
- 21. At an operationallevel, process and initiative Matrix‟s are used to align the operational level to the strategic Operational Alignment Matrix can be used to align the operational level to strategic; Objectives Risks Controls Use percentages to show the level of alignment Page 21 100% - Very Strong Alignment 75% - Strong Alignment 50% - Moderate Alignment 25% - Weak Alignment 0% - No Alignment
- 22. How to meetFCA requirements…and enable effective conduct risk management (and strategy execution) Risk-Based approach to managing your firm Proven approach to drive & sustain change Enabling software solution which embeds a Risk-Based approach Page 22
- 23. The Risk-Based PerformanceManagement (RBPM) roadmap can be used to guide the implementation of an effective response to the Conduct Risk agenda Execution Formulation Define Strengths & Weaknesses Define Strategic Goals Define Business Drivers Align Risk Appetite & Strategy Board Define Strategic Controls Define Strategic Objectives Define the Strategy Define the Business Model Page 23 Define Strategic Risks Define Risk Appetite Define Indicators Define Processes Define Initiatives Define Operational Risks Define Operational Controls Executive Assess Risks & Controls Monitor Appetite Alignment
- 24. The RACI modelis embedded within our solution and is used to clarify and embed accountabilities for (customer) outcomes “The doers” Those people working on delivering the objective, managing the risk or applying the control. “Keep in the picture” Position(s) that need to know about decision or action related to the objective, risk or control. Page 24 “The buck stops here” P Those with Yes/No authority related to the objective, risk or control. “Keep in the loop” Those involved prior to decisions or action related to the objective, risk or control.
- 25. How to meetFCA requirements…and enable effective conduct risk management (and strategy execution) Risk-Based approach to managing your firm Proven approach to drive & sustain change Enabling software solution which embeds a Risk-Based approach Page 25
- 26. Introducing StratexPoint Built onthe ubiquitous SharePoint platform Supports each of the Three Lines of Defence Our solution delivers: High ROI High User Adoption High Levels of assurance that your business is operating within appetite Comprehensive in nature but modular in deployment StratexPoint is also a proven tool for supporting the 4th Line of Defence Page 26
- 27. StratexPoint is oneof the most complete strategy execution & risk management solutions available today 1st Line Strategy-focused, Risk Aware culture enabled and embedded Easy access to powerful MI & Analytics Page 27 3rd Line Take a Risk-based approach to auditing and business assurance Risk-Based Performance Management Balanced Scorecard & Strategy Map Enterprise & Operational Risk Management Risk-Based Internal Auditing Business driven design Leverage your existing technology 2nd Line Work with the business to build competitive advantage 78% of Fortune 500 companies Every day for the past five years, 20,000 workers have joined the ranks of SharePoint users One in every five knowledge workers now has access to SharePoint
- 28. Underpinning our solutionis a „conceptually sound‟ data model which embeds a Risk-Based approach Entity Business Drivers Objectives Risk Appetite Processes Initiatives Systems People & Roles Assets Operational enablers are aligned to strategy Actions Governance Key Risks KRIs KPIs Actions Assessment Events Commentary Workflows Audit Trails KCIs Build a strategy focused, risk aware culture Page 28 Key Controls Actions Assessment Certification
- 29. Our solution enablesfirms to the requirements of Conduct Risk whilst driving business change and value Entity Business Model Customer Objectives Customer Risk Appetite Customer Processes Customer Initiatives Customer Systems Customer People & Roles Customer Assets Operational enablers are aligned to strategy KPIs Actions Customer Key Risks KRIs Governance Actions Assessment Events Commentary Workflows Audit Trails KCIs Build a strategy focused, risk aware culture Page 29 Customer Key Controls Actions Assessment Certification
- 30. Example of aOverview Conduct Risk dashboard Page 30
- 31. Example „Bubble‟ upDashboard Page 31
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- 34. Indicator „Line ofSight‟ Dashboard Page 34
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- 36. Stratex Conduct RiskQuickStart Delivering Effective Conduct Risk Management… Fast, at a low cost with guaranteed delivery
- 37. About the StratexConduct Risk QuickStart Pre-built Conduct Risk template solution and implementation plan to enable an effective and proven approach to conduct risk. Quickly establish the platform and approach to enable you to demonstrate you have an effective approach to conduct risk. Proven, low cost, low risk solution Clear set of deliverables within agreed timescales (30 – 90 days depending on initial scope) Guaranteed delivery Page 37
- 38. Conduct Risk QuickStartOverview Plan Discovery Design Build Deploy Installation (SharePoint & Reporting) UAT Live Deploy Stratex Conduct Template Review existing conduct approach & MI Prepare and import existing conduct data (if applicable) Develop Conduct Risk ‘Reporting pack’ & custom MI StratexPoint Training Admin Power User Next 90 Days Workshop & Roadmap Handover 30 to 90 Days (depending on scope) Page 38
- 39. Conduct Risk QuickStart Pre-built Conduct Risk template including; Conduct Risk Strategy Map & Risk Map Conduct Risk Appetite approach & tools Conduct Risk Performance & Risk Scorecards Conduct Risk register Conduct Risk controls Conduct Risk indicators (KPIs, KRIs & KCIs) Accountabilities model (RACI) Page 39
- 40. About the StratexConduct Risk QuickStart What is included? Scoping and discovery workshops Support the initial installation of StratexPoint on UAT and Live Deployment of a Conduct Risk template Import of existing Conduct Risk information or data User requirements works to refine the Conduct Risk approach & framework 1 day Administration training course 2 day Power User training course (x 1 – 5) Deployment and review all standard reports Create a single customised Conduct Risk „reporting pack‟ Full project management approach Next 90 days roll-out & embedding workshop and roadmap 25 User Licenses of StratexPoint Who will deliver & what will it cost The QuickStart is delivered by 1 Business consultant 1 Technical consultant 1 Project Manager (50%) The QuickStart is typically delivered in between 30 – 90 days depending on initial scope. The QuickStart includes a full money back guarantee
- 41. Contact details Andrew Smart CEO StratexSystems Email:andrew.smart@stratexsystems.com Blog: www.riskbasedperformance.com Web: www.stratexsystems.com LinkedIn: http://uk.linkedin.com/in/ajsmart Twitter:@AndrewJSmart Page 41
Editor's Notes
- #5 1. Firm Systematic Framework (FSF) –preventative work through structuredconduct assessment of firms.2. Event-driven work – dealing fasterand more decisively with problems thatare emerging or have happened, andsecuring customer redress or otherremedial work where necessary. This willcover issues that occur outside the firmassessment cycle, and will use betterdata monitoring and intelligence.3. Issues and products – fast, intensivecampaigns on sectors of the market orproducts within a sector that are puttingor may put consumers at risk.