SlideShare a Scribd company logo
PricewaterhouseCoopersFRM 101
1

Derrick Ryley
FX Risk -
Managing and Measuring
19 March 2002
PricewaterhouseCoopersFRM 101
2
Agenda
• Dimensions of risk that needs to be managed
• Establishing a risk control framework
• Ensuring Control of FX and associated risks
• Observations and final considerations
PricewaterhouseCoopersFRM 101
3
Who Creates Risk
Agri Business
• Policy -Hedge 100% of sales
• Directors
• GM Finance
• Head trader
• CFO
PricewaterhouseCoopersFRM 101
4
Who Creates Risk
Agri Business
• Policy -Hedge 100% of sales
• Directors
• GM Finance
• Head trader
• CFO
PricewaterhouseCoopersFRM 101
5
Who Creates Risk
Bank
• Policy –VAR not greater than
$X million
• Directors
• GM Finance
• Head trader
• CFO
PricewaterhouseCoopersFRM 101
6
Who Creates Risk
Bank
• Policy –VAR not greater than
$X million
• Directors
• GM Finance
• Head trader
• CFO
PricewaterhouseCoopersFRM 101
7
Who Creates Risk
Gold Company
• Policy -Hedge X% of projected
production
• Directors
• GM Finance
• Head trader
• CFO
PricewaterhouseCoopersFRM 101
8
Who Creates Risk
Gold Company
• Policy -Hedge X% of projected
production
• Directors
• GM Finance
• Head trader
• CFO
• Mine Manager
PricewaterhouseCoopersFRM 101
9
Who Creates Risk
Power Company
• Policy -Hedge not less than
100% of committed sales
• Directors
• GM Finance
• Head trader
• CFO
PricewaterhouseCoopersFRM 101
10
Who Creates Risk
Power Company
• Policy -Hedge not less than
100% of committed sales
• Directors
• GM Finance
• Head trader
• CFO
• Salesman/weather
PricewaterhouseCoopersFRM 101
11
“Operational risk is the risk of
direct or indirect loss resulting from
inadequate or failed
internal processes, people and
systems or from external events”
What is Operational Risk?
There is a general consensus on what
operational risk is:
PricewaterhouseCoopersFRM 101
12
Common risk view
Understanding
dependencies
Information
Decisions/direction(e.g.,
controlsorfunding)
Current approaches to management are
fragmented
Corporate Risk
Compliance
Customer Service
Audit
Data Protection
Fraud IA
Testing
Transaction
Monitoring
Physical
Security
IT Security
A View of the Current Approach to
Risk Management
An Integrated, Enterprise-wide
Approach to Risk Management
PricewaterhouseCoopersFRM 101
13
Ten questions to ask about your
operational risk process
• Is the full scope of operational risks being proactively analyzed?
• Is there accountability for each types of operational risk?
• Are issues being identified, analyzed and understood?
• Are service/quality expectations being met?
• How much does operational risk cost the organisation?
• Is senior management rewarded for good performance?
• Are risks being addressed with a suitable focus on alternatives and
cost/benefits?
• Is management being supportive and creating the right culture?
• Are issues raised being analyzed and addressed?
• Do we communicate standards to our stakeholders?
PricewaterhouseCoopersFRM 101
14
Event
EffectCause
The industry is moving to a common
language for operational risk
PricewaterhouseCoopersFRM 101
15
Event
EffectCause
Sales Practices
Transaction Processing
Criminal activities
Unauthorized activities
Technology
Human Resources
Vendor and External Dependencies
Management Process
Disasters
Product
Event definitions are based on what
happened and where
PricewaterhouseCoopersFRM 101
16
Event Effect
Cause
Impact to
Expenses
Legal
Cost/Settlement
Regulatory/
Compliance
Restitution
Loss of recourse
Write-downs
Loss of Physical
Asset
Any event can have multiple effects
Impact to
revenue/margin
Service Levels
Foregone
Income
Quality
Reputation
Business
Interruption
PricewaterhouseCoopersFRM 101
17
Event
Effect
Cause
Internal Controls
Policies & Procedures
Management Oversight
Hiring & Training
Turnover
Automation
Information
Malice
Causes indicate what controls went wrong
permitting the event to occur
PricewaterhouseCoopersFRM 101
18
Qualitative criteria exist to advance to each step
Basic
Indicator
Approach
Standardized
Approach
Advanced
Measurement
Approach
Effective
Risk
Management
and Control
Measurement
and
Validation
None Independent op risk
management
Use of risk reporting
Active board of
directors/Senior Management
Documentation of risk systems
Audit review of process
Risk management is conceptually
sound and has integrity
Sufficient resources
Integration into reporting,
capital, risk analysis
Use in day-to-day activities
Loss database and 3-5 year history
99.9% level of confidence
Scaling of internal/external data
Consistent process
Rigorous process for including
external data
Capture tail risk
Stress/scenario testing
Disciplined over-ride process
Risk reporting to support data
for capital
Tracking risk and loss data
Mapping of event categories
and business lines to standard
framework
PricewaterhouseCoopersFRM 101
19
Establishing a risk control framework
• Organisation
• Policy
• Risk Indicators
PricewaterhouseCoopersFRM 101
20
Board of
Directors
Internal Audit
Senior
Management
Operational Risk Committee
Chief Risk Officer
Business Unit
Management
Business Units
Operational Risk
Staff
Operational
Risk Related
Staff Functions
•Compliance
•Human Resources
•Insurance
•IT
•Legal
Head of
Operational Risk
Head Office
Operational Risk
Staff
The management structure is characterized by
a head of operational risk reporting to the
Chief Risk Officer.
PricewaterhouseCoopersFRM 101
21
Risk Management Organizational Model
Risk Management
Approach and
Strategy
Risk Management
Directives
Risk Management
Implementation
and Monitoring
Risk Identification,
Assessment,
Mitigation and
Reporting
Risk Management
Program Testing
Executive
Management
Risk Management
Committee
Chief Risk Officer
Business Units
Internal Audit
Board of Directors
Risk Management
Philosophy
The responsibility for risk
management rests with the
business units which will be
supported by guidance from
the Board of Directors and
senior management.
Proposed responsibilities
are as follows:
PricewaterhouseCoopersFRM 101
22
• Provide clear guidance and communication about the
definition of risk.
• Ensure linkage to the company’s overall business
objectives.
• Reduce the possibility of miscommunication and possible
errors in the management of the foreign currency
program.
• Define what and when.
• Ensure that the company’s risk management objectives
are met and that the hedging strategy is well executed.
Policy
PricewaterhouseCoopersFRM 101
23
Exposure Identification
• Transactional exposure
– Explicit exposure (event has occurred)
– Implicit exposure (event is scheduled/forecast to occur)
• Translation or Balance Sheet exposure (FX Subsidiary)
• Economic or Operating exposure (embedded in business)
PricewaterhouseCoopersFRM 101
24
Exposure Measurement
• Who is responsible?
– generally treasury
– may be coordinates
– must be risk committee
• Data needs
– large, see later slides
• Timing
– at least monthly or more frequent
– following major change event
• Tools
– usual, VAR, MtM, Credit, Stress Testing, Scenario testing
PricewaterhouseCoopersFRM 101
25
operational risk has two dimensions of
Operational
Risk
People & Culture Business Process
Control Survey
Control
Environment
Risk
Assessment
Control
Activities
Information &
Communication
Monitoring
Objective, Risk &
Control Alignment
Define
Objectives
Action Planning/
Accountabilities
Assess Risks
Analyze
Controls
"Soft Controls" "Hard Controls"
Risk Indicators
PricewaterhouseCoopersFRM 101
26
. . . Only if someone follows-up
“What gets measured gets done . . .”
Risk Indicators
PricewaterhouseCoopersFRM 101
27
Most companies have data overload yet little insight into progress toward
strategy or understanding of current operational related risks . . .
– Indicators are additive and not prioritised or rationalised
– Use what is readily available, not what is insightful
– Data is often lagging not leading
– Risk indicators do not have a context - few firms have an
operational risk framework and there is little to no
relationship of operational risk measures to key
management reporting measures or compensation
– Finally, there is no proven correlation between risk
and indicators - so results are discounted
Risk Indicators
PricewaterhouseCoopersFRM 101
28
Asset and Liability Management
Definition:
“Asset/Liability Management is the set of actions and procedures designed to co-
ordinate the organisation’s overall and individual business units contribution to
its risks and financial position”
Duties:
1. Devise and review strategies to maximise earnings and return on capital within
agreed and measured levels of risks;
2. Monitor and discuss the status and results of agreed ALCO strategies and
tactics;
3. Review outlooks affecting individual business units’ risk profile and contribution
to revenue;
4. Review the current and prospective positions and monitor potential structural
or market changes that can affect liquidity;
5. Review measurements reports on identified risks, including simulated
exposures of risks to limits, asset mix/quality, credit, and impact of market
shifts on overall organisation risk and financial position;
6. Develop parameters for pricing;
7. Provide for regular formal review of ALCO “model risk” assumptions, including
an appropriate training for ALCO members, executive management and the
Board of Directors.
PricewaterhouseCoopersFRM 101
29
Reporting No FX Risk ?
Base Gap
-150
-100
-50
0
50
100
150
Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03M
ar-03Apr-03M
ay-03Jun-03Jul-03Aug-03Sep-03Oct-03Nov-03Dec-03Jan-04Feb-04M
ar-04Apr-04M
ay-04Jun-04
Sales
Purchases
Spot
PricewaterhouseCoopersFRM 101
30
Reporting No FX Risk ?
Pessimistic Gap
-150
-100
-50
0
50
100
Jul-02Aug-02Sep-02O
ct-02N
ov-02D
ec-02Jan-03Feb-03M
ar-03Apr-03M
ay-03Jun-03Jul-03Aug-03Sep-03O
ct-03N
ov-03D
ec-03Jan-04Feb-04M
ar-04Apr-04M
ay-04Jun-04
Sales
Purchases
Spot
PricewaterhouseCoopersFRM 101
31
No FX Risk
Normal Sales
-40
-20
0
20
40
60
80
100
120
140
160
Jul-02
Sep-02
N
ov-02
Jan-03
M
ar-03
M
ay-03
Jul-03
Sep-03
N
ov-03
Jan-04
M
ar-04
M
ay-04
Sales base
Purchases
Spot
Profit
PricewaterhouseCoopersFRM 101
32
No FX Risk
Sales/Pessimistic
-60
-40
-20
0
20
40
60
80
100
120
140
160
Jul-02
Sep-02
N
ov-02
Jan-03
M
ar-03
M
ay-03
Jul-03
Sep-03
N
ov-03
Jan-04
M
ar-04
M
ay-04
Sales base
Spot
Profit Base
Sales Pessimistic
Profit Pessimistic
PricewaterhouseCoopersFRM 101
33
Lets look at Future
Alco Gap Base
-100
-50
0
50
100
150
Jul-02Aug-02Sep-02O
ct-02N
ov-02D
ec-02Jan-03Feb-03M
ar-03Apr-03M
ay-03Jun-03Jul-03Aug-03Sep-03O
ct-03N
ov-03D
ec-03Jan-04Feb-04M
ar-04Apr-04M
ay-04Jun-04
Sales
Purchases
Spot
PricewaterhouseCoopersFRM 101
34
Lets look at Profit
Profit Ranges
-150
-100
-50
0
50
100
150
200
250
300
350
400
Jul-02Sep-02N
ov-02Jan-03M
ar-03M
ay-03Jul-03Sep-03N
ov-03Jan-04M
ar-04M
ay-04
Base Base
Base High
Base Low
Opt Base
Opt High
Opt Low
Pess Base
Pess High
Pess Low
PricewaterhouseCoopersFRM 101
35
Lets look at Profit
High/Expected/Low
-150
-100
-50
0
50
100
150
200
250
300
350
400
Jul-02
Sep-02
N
ov-02
Jan-03
M
ar-03
M
ay-03
Jul-03
Sep-03
N
ov-03
Jan-04
M
ar-04
M
ay-04
High
Base
Low
PricewaterhouseCoopersFRM 101
36
Increasing sophistication and data requirements
1. Rate Sensitive
Imbalance
(Rate Sensitive
Assets Less Rate
Sensitive Liabilities
2. Maturity/
Repricing Gap
Analysis
3. Duration
Analysis
4. Simulation of Net
profit and Market
Value of Portfolio
The ability to assess the economic impact due to
changes in FX exposure has become more
sophisticated over time
RX Risk Management
PricewaterhouseCoopersFRM 101
37
Conclusion
• Look at organisation as whole
• Do not limit your horizons to treasury
– The sales man could take you down
– The banks sales man could take you down
• Engage the GM’s at all level’s, the mine manager could effect
you
• There is no one solution, it should be within a range
• Influence the upside
• Cost and protect the downside
• Put proper process in place
• Educate
• Educate
PricewaterhouseCoopersFRM 101
38


More Related Content

What's hot

Treasury risks www.mobilemoviesite.com
Treasury risks www.mobilemoviesite.comTreasury risks www.mobilemoviesite.com
Treasury risks www.mobilemoviesite.com
Yasir Butt
 
Measuring risk essentials of financial risk management
Measuring risk essentials of financial risk managementMeasuring risk essentials of financial risk management
Measuring risk essentials of financial risk management
Chho Phet
 
Bank risk management
Bank risk managementBank risk management
Bank risk management
Ashima Thakur
 
Risk & return measurement
Risk & return measurementRisk & return measurement
Risk & return measurement
Ruby Sharma
 
Risk types
Risk  typesRisk  types
Risk types
sai precious
 
Alm in banks
Alm in banksAlm in banks
Alm in banks
Parth Maheshwari
 
Complex risk management, Wednesday 21st January 2015
Complex risk management, Wednesday 21st January 2015Complex risk management, Wednesday 21st January 2015
Complex risk management, Wednesday 21st January 2015
Association for Project Management
 
8. new advanced_alm_2011.10.8
8. new advanced_alm_2011.10.88. new advanced_alm_2011.10.8
8. new advanced_alm_2011.10.8
feelcool
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Asset Liability Management
shailesh kediya
 
Curse of the Benchmarks
Curse of the BenchmarksCurse of the Benchmarks
Curse of the Benchmarks
London Business School
 
Unisa risk analysis
Unisa risk analysisUnisa risk analysis
Unisa risk analysis
sgd3261
 
Asset liability management
Asset liability managementAsset liability management
Asset liability management
Anil Chaurasiya
 
Investment Risk Management
Investment Risk ManagementInvestment Risk Management
Investment Risk Management
InvestingTips
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Collapse Of Long Term Management (LTCM)- FIXED INCOME project
Collapse Of Long Term Management (LTCM)- FIXED INCOME projectCollapse Of Long Term Management (LTCM)- FIXED INCOME project
Collapse Of Long Term Management (LTCM)- FIXED INCOME project
Saurabh Mittra
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Asset Liability Management
Prachi Gupta
 
Paper -future_of_finance_function
Paper  -future_of_finance_functionPaper  -future_of_finance_function
Paper -future_of_finance_function
Vikram Sankhala IIT, IIM, Ex IRS, FRM, Fin.Engr
 
An introduction to Asset Liability Management
An introduction to Asset Liability ManagementAn introduction to Asset Liability Management
An introduction to Asset Liability Management
Kumar Rakesh Chandra
 
Asset liability management
Asset liability managementAsset liability management
Asset liability management
firoze p
 
Systemic Risk in Asset Management
Systemic Risk in Asset Management Systemic Risk in Asset Management
Systemic Risk in Asset Management
London Business School
 

What's hot (20)

Treasury risks www.mobilemoviesite.com
Treasury risks www.mobilemoviesite.comTreasury risks www.mobilemoviesite.com
Treasury risks www.mobilemoviesite.com
 
Measuring risk essentials of financial risk management
Measuring risk essentials of financial risk managementMeasuring risk essentials of financial risk management
Measuring risk essentials of financial risk management
 
Bank risk management
Bank risk managementBank risk management
Bank risk management
 
Risk & return measurement
Risk & return measurementRisk & return measurement
Risk & return measurement
 
Risk types
Risk  typesRisk  types
Risk types
 
Alm in banks
Alm in banksAlm in banks
Alm in banks
 
Complex risk management, Wednesday 21st January 2015
Complex risk management, Wednesday 21st January 2015Complex risk management, Wednesday 21st January 2015
Complex risk management, Wednesday 21st January 2015
 
8. new advanced_alm_2011.10.8
8. new advanced_alm_2011.10.88. new advanced_alm_2011.10.8
8. new advanced_alm_2011.10.8
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Asset Liability Management
 
Curse of the Benchmarks
Curse of the BenchmarksCurse of the Benchmarks
Curse of the Benchmarks
 
Unisa risk analysis
Unisa risk analysisUnisa risk analysis
Unisa risk analysis
 
Asset liability management
Asset liability managementAsset liability management
Asset liability management
 
Investment Risk Management
Investment Risk ManagementInvestment Risk Management
Investment Risk Management
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Asset Liability Management
 
Collapse Of Long Term Management (LTCM)- FIXED INCOME project
Collapse Of Long Term Management (LTCM)- FIXED INCOME projectCollapse Of Long Term Management (LTCM)- FIXED INCOME project
Collapse Of Long Term Management (LTCM)- FIXED INCOME project
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Asset Liability Management
 
Paper -future_of_finance_function
Paper  -future_of_finance_functionPaper  -future_of_finance_function
Paper -future_of_finance_function
 
An introduction to Asset Liability Management
An introduction to Asset Liability ManagementAn introduction to Asset Liability Management
An introduction to Asset Liability Management
 
Asset liability management
Asset liability managementAsset liability management
Asset liability management
 
Systemic Risk in Asset Management
Systemic Risk in Asset Management Systemic Risk in Asset Management
Systemic Risk in Asset Management
 

Similar to FX Risk Management – Best Practice Standards for Good Corporate Governance

Enterprise risk management summary approach guide
Enterprise risk management summary approach guideEnterprise risk management summary approach guide
Enterprise risk management summary approach guide
AstalapulosListestos
 
Enterprise risk management summary approach guide
Enterprise risk management summary approach guideEnterprise risk management summary approach guide
Enterprise risk management summary approach guide
CenapSerdarolu
 
Erm talking points
Erm talking pointsErm talking points
Erm talking points
EnterpriseGRC Solutions, Inc.
 
Risk Management and Risk Transfer
Risk Management and Risk TransferRisk Management and Risk Transfer
Risk Management and Risk Transfer
CBIZ, Inc.
 
Erm overview of auditing fraud and revenue assurance
Erm   overview of auditing fraud and revenue assuranceErm   overview of auditing fraud and revenue assurance
Erm overview of auditing fraud and revenue assurance
wisnu wardhana, i nyoman
 
Risk review v diagnostic review
Risk review v diagnostic reviewRisk review v diagnostic review
Risk review v diagnostic review
AdamRice38
 
Operational Risk Management - A Gateway to managing the risk profile of your...
Operational Risk Management -  A Gateway to managing the risk profile of your...Operational Risk Management -  A Gateway to managing the risk profile of your...
Operational Risk Management - A Gateway to managing the risk profile of your...
Eneni Oduwole
 
HIRimsISO311KandERMFINAL
HIRimsISO311KandERMFINALHIRimsISO311KandERMFINAL
HIRimsISO311KandERMFINAL
Chris Mandel, RF, ARM-E
 
Creating Value Through Enterprise Risk Management
Creating Value Through Enterprise Risk Management Creating Value Through Enterprise Risk Management
Creating Value Through Enterprise Risk Management
Risk Management Institution of Australasia
 
ISO Internal Auditors Workshop_Final Version
ISO Internal Auditors Workshop_Final VersionISO Internal Auditors Workshop_Final Version
ISO Internal Auditors Workshop_Final Version
Duncan O. Ogutu; CPA, CFE
 
Enterprise governance risk_compliance_fcm slides
Enterprise governance risk_compliance_fcm slidesEnterprise governance risk_compliance_fcm slides
Enterprise governance risk_compliance_fcm slides
EnterpriseGRC Solutions, Inc.
 
Operational risk & business continuity management
Operational risk & business continuity managementOperational risk & business continuity management
Operational risk & business continuity management
Ujjwal 'Shanu'
 
Manajemen Risiko Menurut COSO
Manajemen Risiko Menurut COSOManajemen Risiko Menurut COSO
Manajemen Risiko Menurut COSO
Dina Pramudianti
 
Coso erm
Coso ermCoso erm
Coso erm
Coso ermCoso erm
Coso erm
luisrobles_cl
 
Introduction to Risk Management and Sources of Risk.pptx
Introduction to Risk Management and Sources of Risk.pptxIntroduction to Risk Management and Sources of Risk.pptx
Introduction to Risk Management and Sources of Risk.pptx
manjujayakumar2
 
Trustee Conference AM4: Effectively managing risk
Trustee Conference AM4: Effectively managing riskTrustee Conference AM4: Effectively managing risk
Trustee Conference AM4: Effectively managing risk
NCVO - National Council for Voluntary Organisations
 
mr neeraj - day 1 - compliance
mr neeraj - day 1 - compliancemr neeraj - day 1 - compliance
mr neeraj - day 1 - compliance
Neeraj Verma
 
Third-Party Risk Management: Implementing a Strategy
Third-Party Risk Management: Implementing a StrategyThird-Party Risk Management: Implementing a Strategy
Third-Party Risk Management: Implementing a Strategy
NICSA
 
Treasury Risk Management and Regulations: Tough Questions for Treasurers
Treasury Risk Management and Regulations: Tough Questions for TreasurersTreasury Risk Management and Regulations: Tough Questions for Treasurers
Treasury Risk Management and Regulations: Tough Questions for Treasurers
FIS
 

Similar to FX Risk Management – Best Practice Standards for Good Corporate Governance (20)

Enterprise risk management summary approach guide
Enterprise risk management summary approach guideEnterprise risk management summary approach guide
Enterprise risk management summary approach guide
 
Enterprise risk management summary approach guide
Enterprise risk management summary approach guideEnterprise risk management summary approach guide
Enterprise risk management summary approach guide
 
Erm talking points
Erm talking pointsErm talking points
Erm talking points
 
Risk Management and Risk Transfer
Risk Management and Risk TransferRisk Management and Risk Transfer
Risk Management and Risk Transfer
 
Erm overview of auditing fraud and revenue assurance
Erm   overview of auditing fraud and revenue assuranceErm   overview of auditing fraud and revenue assurance
Erm overview of auditing fraud and revenue assurance
 
Risk review v diagnostic review
Risk review v diagnostic reviewRisk review v diagnostic review
Risk review v diagnostic review
 
Operational Risk Management - A Gateway to managing the risk profile of your...
Operational Risk Management -  A Gateway to managing the risk profile of your...Operational Risk Management -  A Gateway to managing the risk profile of your...
Operational Risk Management - A Gateway to managing the risk profile of your...
 
HIRimsISO311KandERMFINAL
HIRimsISO311KandERMFINALHIRimsISO311KandERMFINAL
HIRimsISO311KandERMFINAL
 
Creating Value Through Enterprise Risk Management
Creating Value Through Enterprise Risk Management Creating Value Through Enterprise Risk Management
Creating Value Through Enterprise Risk Management
 
ISO Internal Auditors Workshop_Final Version
ISO Internal Auditors Workshop_Final VersionISO Internal Auditors Workshop_Final Version
ISO Internal Auditors Workshop_Final Version
 
Enterprise governance risk_compliance_fcm slides
Enterprise governance risk_compliance_fcm slidesEnterprise governance risk_compliance_fcm slides
Enterprise governance risk_compliance_fcm slides
 
Operational risk & business continuity management
Operational risk & business continuity managementOperational risk & business continuity management
Operational risk & business continuity management
 
Manajemen Risiko Menurut COSO
Manajemen Risiko Menurut COSOManajemen Risiko Menurut COSO
Manajemen Risiko Menurut COSO
 
Coso erm
Coso ermCoso erm
Coso erm
 
Coso erm
Coso ermCoso erm
Coso erm
 
Introduction to Risk Management and Sources of Risk.pptx
Introduction to Risk Management and Sources of Risk.pptxIntroduction to Risk Management and Sources of Risk.pptx
Introduction to Risk Management and Sources of Risk.pptx
 
Trustee Conference AM4: Effectively managing risk
Trustee Conference AM4: Effectively managing riskTrustee Conference AM4: Effectively managing risk
Trustee Conference AM4: Effectively managing risk
 
mr neeraj - day 1 - compliance
mr neeraj - day 1 - compliancemr neeraj - day 1 - compliance
mr neeraj - day 1 - compliance
 
Third-Party Risk Management: Implementing a Strategy
Third-Party Risk Management: Implementing a StrategyThird-Party Risk Management: Implementing a Strategy
Third-Party Risk Management: Implementing a Strategy
 
Treasury Risk Management and Regulations: Tough Questions for Treasurers
Treasury Risk Management and Regulations: Tough Questions for TreasurersTreasury Risk Management and Regulations: Tough Questions for Treasurers
Treasury Risk Management and Regulations: Tough Questions for Treasurers
 

More from Expoco

Load Profiling for the NSW Gas Mass Market
Load Profiling for the NSW Gas Mass Market Load Profiling for the NSW Gas Mass Market
Load Profiling for the NSW Gas Mass Market
Expoco
 
Market Entry Theory and Practice
Market Entry Theory and PracticeMarket Entry Theory and Practice
Market Entry Theory and Practice
Expoco
 
Identity Management and the Australian Organisation
Identity Management and the Australian OrganisationIdentity Management and the Australian Organisation
Identity Management and the Australian Organisation
Expoco
 
Performance, Rewards and the New Psychological Contract
Performance, Rewards and the New Psychological ContractPerformance, Rewards and the New Psychological Contract
Performance, Rewards and the New Psychological Contract
Expoco
 
Corporate Security and the Organisational Frontline
Corporate Security and the Organisational FrontlineCorporate Security and the Organisational Frontline
Corporate Security and the Organisational Frontline
Expoco
 
Human Capital: measuring the unmeasurable
Human Capital: measuring the unmeasurableHuman Capital: measuring the unmeasurable
Human Capital: measuring the unmeasurable
Expoco
 
Becoming an Employer of Choice: Mapping the Practices of a Winning Organisation
Becoming an Employer of Choice: Mapping the Practices of a Winning OrganisationBecoming an Employer of Choice: Mapping the Practices of a Winning Organisation
Becoming an Employer of Choice: Mapping the Practices of a Winning Organisation
Expoco
 
Employment Branding - Building Talent Market Equity
Employment Branding - Building Talent Market EquityEmployment Branding - Building Talent Market Equity
Employment Branding - Building Talent Market Equity
Expoco
 
Outsourcing human resources
Outsourcing human resourcesOutsourcing human resources
Outsourcing human resources
Expoco
 
Unleashing human capital
Unleashing human capitalUnleashing human capital
Unleashing human capital
Expoco
 
Issues in Business Etiquette
Issues in Business EtiquetteIssues in Business Etiquette
Issues in Business Etiquette
Expoco
 
Electronic recordkeeping
Electronic recordkeepingElectronic recordkeeping
Electronic recordkeeping
Expoco
 
Organising Corporate Events
Organising Corporate EventsOrganising Corporate Events
Organising Corporate Events
Expoco
 
Team Leading
Team LeadingTeam Leading
Team Leading
Expoco
 
Communicating in a Crisis
Communicating in a CrisisCommunicating in a Crisis
Communicating in a Crisis
Expoco
 
Project management 101
Project management 101 Project management 101
Project management 101
Expoco
 
CSR and Corporate Philanthropy
CSR and Corporate Philanthropy CSR and Corporate Philanthropy
CSR and Corporate Philanthropy
Expoco
 
The business case for emotional intelligence
The business case for emotional intelligenceThe business case for emotional intelligence
The business case for emotional intelligence
Expoco
 
Business Sustainability
Business SustainabilityBusiness Sustainability
Business Sustainability
Expoco
 
Mentoring and Growth
Mentoring and GrowthMentoring and Growth
Mentoring and Growth
Expoco
 

More from Expoco (20)

Load Profiling for the NSW Gas Mass Market
Load Profiling for the NSW Gas Mass Market Load Profiling for the NSW Gas Mass Market
Load Profiling for the NSW Gas Mass Market
 
Market Entry Theory and Practice
Market Entry Theory and PracticeMarket Entry Theory and Practice
Market Entry Theory and Practice
 
Identity Management and the Australian Organisation
Identity Management and the Australian OrganisationIdentity Management and the Australian Organisation
Identity Management and the Australian Organisation
 
Performance, Rewards and the New Psychological Contract
Performance, Rewards and the New Psychological ContractPerformance, Rewards and the New Psychological Contract
Performance, Rewards and the New Psychological Contract
 
Corporate Security and the Organisational Frontline
Corporate Security and the Organisational FrontlineCorporate Security and the Organisational Frontline
Corporate Security and the Organisational Frontline
 
Human Capital: measuring the unmeasurable
Human Capital: measuring the unmeasurableHuman Capital: measuring the unmeasurable
Human Capital: measuring the unmeasurable
 
Becoming an Employer of Choice: Mapping the Practices of a Winning Organisation
Becoming an Employer of Choice: Mapping the Practices of a Winning OrganisationBecoming an Employer of Choice: Mapping the Practices of a Winning Organisation
Becoming an Employer of Choice: Mapping the Practices of a Winning Organisation
 
Employment Branding - Building Talent Market Equity
Employment Branding - Building Talent Market EquityEmployment Branding - Building Talent Market Equity
Employment Branding - Building Talent Market Equity
 
Outsourcing human resources
Outsourcing human resourcesOutsourcing human resources
Outsourcing human resources
 
Unleashing human capital
Unleashing human capitalUnleashing human capital
Unleashing human capital
 
Issues in Business Etiquette
Issues in Business EtiquetteIssues in Business Etiquette
Issues in Business Etiquette
 
Electronic recordkeeping
Electronic recordkeepingElectronic recordkeeping
Electronic recordkeeping
 
Organising Corporate Events
Organising Corporate EventsOrganising Corporate Events
Organising Corporate Events
 
Team Leading
Team LeadingTeam Leading
Team Leading
 
Communicating in a Crisis
Communicating in a CrisisCommunicating in a Crisis
Communicating in a Crisis
 
Project management 101
Project management 101 Project management 101
Project management 101
 
CSR and Corporate Philanthropy
CSR and Corporate Philanthropy CSR and Corporate Philanthropy
CSR and Corporate Philanthropy
 
The business case for emotional intelligence
The business case for emotional intelligenceThe business case for emotional intelligence
The business case for emotional intelligence
 
Business Sustainability
Business SustainabilityBusiness Sustainability
Business Sustainability
 
Mentoring and Growth
Mentoring and GrowthMentoring and Growth
Mentoring and Growth
 

Recently uploaded

Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...
Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...
Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...
rightmanforbloodline
 
Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...
Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...
Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...
seenaoberoi
 
Girls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in CityGirls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in City
margaretblush
 
Integration PowerPoint covering various areas
Integration PowerPoint covering various areasIntegration PowerPoint covering various areas
Integration PowerPoint covering various areas
Vaidyanathan11
 
Typical Scams to Stay Away from When Buying Verified Binance Accounts
Typical Scams to Stay Away from When Buying Verified Binance AccountsTypical Scams to Stay Away from When Buying Verified Binance Accounts
Typical Scams to Stay Away from When Buying Verified Binance Accounts
Any kyc Account
 
Goods and Service Tax new goods and service tax
Goods and Service Tax new goods and service taxGoods and Service Tax new goods and service tax
Goods and Service Tax new goods and service tax
AadityaBBAB178
 
Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...
Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...
Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...
maigasapphire
 
ppt on Review of literature 1720335948098.pptx
ppt on Review of literature 1720335948098.pptxppt on Review of literature 1720335948098.pptx
ppt on Review of literature 1720335948098.pptx
coolpool363
 
Manchester University diploma
 Manchester University diploma Manchester University diploma
Manchester University diploma
ewopzo
 
OAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptx
OAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptxOAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptx
OAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptx
hiddenlevers
 
MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS JUNE 2024
MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS  JUNE 2024MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS  JUNE 2024
MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS JUNE 2024
Antonis Zairis
 
TriStar Gold- 07-02-2024 presentation PDF
TriStar Gold- 07-02-2024 presentation PDFTriStar Gold- 07-02-2024 presentation PDF
TriStar Gold- 07-02-2024 presentation PDF
Adnet Communications
 
The Growth Story An Overview - India. .pptx
The Growth Story An Overview  - India. .pptxThe Growth Story An Overview  - India. .pptx
The Growth Story An Overview - India. .pptx
RakeshBaptista1
 
Introduction to Islamic Banking and Finance.Part3
Introduction to Islamic Banking and Finance.Part3Introduction to Islamic Banking and Finance.Part3
Introduction to Islamic Banking and Finance.Part3
NasrudinMohamedAhmed
 
Google Pay: Save, Pay, Manage 17+ - App Store
Google Pay: Save, Pay, Manage 17+ - App StoreGoogle Pay: Save, Pay, Manage 17+ - App Store
Google Pay: Save, Pay, Manage 17+ - App Store
gargtinna79
 
Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...
Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...
Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...
sharonblush
 
VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...
VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...
VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...
AK47 AK47
 
Scam 1992 Harshad mehta scam pdf download
Scam 1992 Harshad mehta scam pdf downloadScam 1992 Harshad mehta scam pdf download
Scam 1992 Harshad mehta scam pdf download
bharatbharatjangid46
 
Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...
Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...
Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...
Kathiriyasubsidyhouse
 
Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...
Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...
Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...
Ak47
 

Recently uploaded (20)

Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...
Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...
Solution Manual For Fundamentals of Financial Accounting, 8th Edition 2024 by...
 
Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...
Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...
Surat Girls Call Surat 0X0000000X Payment On Delevery Cash Hot Premium Genuin...
 
Girls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in CityGirls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in City
Girls Call DN Nagar 9910780858 Provide Best And Top Girl Service And No1 in City
 
Integration PowerPoint covering various areas
Integration PowerPoint covering various areasIntegration PowerPoint covering various areas
Integration PowerPoint covering various areas
 
Typical Scams to Stay Away from When Buying Verified Binance Accounts
Typical Scams to Stay Away from When Buying Verified Binance AccountsTypical Scams to Stay Away from When Buying Verified Binance Accounts
Typical Scams to Stay Away from When Buying Verified Binance Accounts
 
Goods and Service Tax new goods and service tax
Goods and Service Tax new goods and service taxGoods and Service Tax new goods and service tax
Goods and Service Tax new goods and service tax
 
Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...
Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...
Girls Call Marine lines 9910780858 Provide Best And Top Girl Service And No1 ...
 
ppt on Review of literature 1720335948098.pptx
ppt on Review of literature 1720335948098.pptxppt on Review of literature 1720335948098.pptx
ppt on Review of literature 1720335948098.pptx
 
Manchester University diploma
 Manchester University diploma Manchester University diploma
Manchester University diploma
 
OAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptx
OAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptxOAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptx
OAT_RI_Ep21 WeighingTheRisks_June24_CommodityInflation.pptx
 
MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS JUNE 2024
MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS  JUNE 2024MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS  JUNE 2024
MEMBERS, FRIENDS AND ASSOCIATES OF ATHENS CALLS ATHENS JUNE 2024
 
TriStar Gold- 07-02-2024 presentation PDF
TriStar Gold- 07-02-2024 presentation PDFTriStar Gold- 07-02-2024 presentation PDF
TriStar Gold- 07-02-2024 presentation PDF
 
The Growth Story An Overview - India. .pptx
The Growth Story An Overview  - India. .pptxThe Growth Story An Overview  - India. .pptx
The Growth Story An Overview - India. .pptx
 
Introduction to Islamic Banking and Finance.Part3
Introduction to Islamic Banking and Finance.Part3Introduction to Islamic Banking and Finance.Part3
Introduction to Islamic Banking and Finance.Part3
 
Google Pay: Save, Pay, Manage 17+ - App Store
Google Pay: Save, Pay, Manage 17+ - App StoreGoogle Pay: Save, Pay, Manage 17+ - App Store
Google Pay: Save, Pay, Manage 17+ - App Store
 
Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...
Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...
Most Girls Call Navi Mumbai 9930245274 Provide Best And Top Girl Service And ...
 
VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...
VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...
VIP Girls Call Noida 9873940964 Provide Best And Top Girl Service And No1 in ...
 
Scam 1992 Harshad mehta scam pdf download
Scam 1992 Harshad mehta scam pdf downloadScam 1992 Harshad mehta scam pdf download
Scam 1992 Harshad mehta scam pdf download
 
Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...
Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...
Unlocking Your Dream Home Understanding Government Subsidies for House and Ho...
 
Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...
Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...
Girls Call Laxmi Nagar 9711199171 Provide Best And Top Girl Service And No1 i...
 

FX Risk Management – Best Practice Standards for Good Corporate Governance

  • 1. PricewaterhouseCoopersFRM 101 1  Derrick Ryley FX Risk - Managing and Measuring 19 March 2002
  • 2. PricewaterhouseCoopersFRM 101 2 Agenda • Dimensions of risk that needs to be managed • Establishing a risk control framework • Ensuring Control of FX and associated risks • Observations and final considerations
  • 3. PricewaterhouseCoopersFRM 101 3 Who Creates Risk Agri Business • Policy -Hedge 100% of sales • Directors • GM Finance • Head trader • CFO
  • 4. PricewaterhouseCoopersFRM 101 4 Who Creates Risk Agri Business • Policy -Hedge 100% of sales • Directors • GM Finance • Head trader • CFO
  • 5. PricewaterhouseCoopersFRM 101 5 Who Creates Risk Bank • Policy –VAR not greater than $X million • Directors • GM Finance • Head trader • CFO
  • 6. PricewaterhouseCoopersFRM 101 6 Who Creates Risk Bank • Policy –VAR not greater than $X million • Directors • GM Finance • Head trader • CFO
  • 7. PricewaterhouseCoopersFRM 101 7 Who Creates Risk Gold Company • Policy -Hedge X% of projected production • Directors • GM Finance • Head trader • CFO
  • 8. PricewaterhouseCoopersFRM 101 8 Who Creates Risk Gold Company • Policy -Hedge X% of projected production • Directors • GM Finance • Head trader • CFO • Mine Manager
  • 9. PricewaterhouseCoopersFRM 101 9 Who Creates Risk Power Company • Policy -Hedge not less than 100% of committed sales • Directors • GM Finance • Head trader • CFO
  • 10. PricewaterhouseCoopersFRM 101 10 Who Creates Risk Power Company • Policy -Hedge not less than 100% of committed sales • Directors • GM Finance • Head trader • CFO • Salesman/weather
  • 11. PricewaterhouseCoopersFRM 101 11 “Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events” What is Operational Risk? There is a general consensus on what operational risk is:
  • 12. PricewaterhouseCoopersFRM 101 12 Common risk view Understanding dependencies Information Decisions/direction(e.g., controlsorfunding) Current approaches to management are fragmented Corporate Risk Compliance Customer Service Audit Data Protection Fraud IA Testing Transaction Monitoring Physical Security IT Security A View of the Current Approach to Risk Management An Integrated, Enterprise-wide Approach to Risk Management
  • 13. PricewaterhouseCoopersFRM 101 13 Ten questions to ask about your operational risk process • Is the full scope of operational risks being proactively analyzed? • Is there accountability for each types of operational risk? • Are issues being identified, analyzed and understood? • Are service/quality expectations being met? • How much does operational risk cost the organisation? • Is senior management rewarded for good performance? • Are risks being addressed with a suitable focus on alternatives and cost/benefits? • Is management being supportive and creating the right culture? • Are issues raised being analyzed and addressed? • Do we communicate standards to our stakeholders?
  • 14. PricewaterhouseCoopersFRM 101 14 Event EffectCause The industry is moving to a common language for operational risk
  • 15. PricewaterhouseCoopersFRM 101 15 Event EffectCause Sales Practices Transaction Processing Criminal activities Unauthorized activities Technology Human Resources Vendor and External Dependencies Management Process Disasters Product Event definitions are based on what happened and where
  • 16. PricewaterhouseCoopersFRM 101 16 Event Effect Cause Impact to Expenses Legal Cost/Settlement Regulatory/ Compliance Restitution Loss of recourse Write-downs Loss of Physical Asset Any event can have multiple effects Impact to revenue/margin Service Levels Foregone Income Quality Reputation Business Interruption
  • 17. PricewaterhouseCoopersFRM 101 17 Event Effect Cause Internal Controls Policies & Procedures Management Oversight Hiring & Training Turnover Automation Information Malice Causes indicate what controls went wrong permitting the event to occur
  • 18. PricewaterhouseCoopersFRM 101 18 Qualitative criteria exist to advance to each step Basic Indicator Approach Standardized Approach Advanced Measurement Approach Effective Risk Management and Control Measurement and Validation None Independent op risk management Use of risk reporting Active board of directors/Senior Management Documentation of risk systems Audit review of process Risk management is conceptually sound and has integrity Sufficient resources Integration into reporting, capital, risk analysis Use in day-to-day activities Loss database and 3-5 year history 99.9% level of confidence Scaling of internal/external data Consistent process Rigorous process for including external data Capture tail risk Stress/scenario testing Disciplined over-ride process Risk reporting to support data for capital Tracking risk and loss data Mapping of event categories and business lines to standard framework
  • 19. PricewaterhouseCoopersFRM 101 19 Establishing a risk control framework • Organisation • Policy • Risk Indicators
  • 20. PricewaterhouseCoopersFRM 101 20 Board of Directors Internal Audit Senior Management Operational Risk Committee Chief Risk Officer Business Unit Management Business Units Operational Risk Staff Operational Risk Related Staff Functions •Compliance •Human Resources •Insurance •IT •Legal Head of Operational Risk Head Office Operational Risk Staff The management structure is characterized by a head of operational risk reporting to the Chief Risk Officer.
  • 21. PricewaterhouseCoopersFRM 101 21 Risk Management Organizational Model Risk Management Approach and Strategy Risk Management Directives Risk Management Implementation and Monitoring Risk Identification, Assessment, Mitigation and Reporting Risk Management Program Testing Executive Management Risk Management Committee Chief Risk Officer Business Units Internal Audit Board of Directors Risk Management Philosophy The responsibility for risk management rests with the business units which will be supported by guidance from the Board of Directors and senior management. Proposed responsibilities are as follows:
  • 22. PricewaterhouseCoopersFRM 101 22 • Provide clear guidance and communication about the definition of risk. • Ensure linkage to the company’s overall business objectives. • Reduce the possibility of miscommunication and possible errors in the management of the foreign currency program. • Define what and when. • Ensure that the company’s risk management objectives are met and that the hedging strategy is well executed. Policy
  • 23. PricewaterhouseCoopersFRM 101 23 Exposure Identification • Transactional exposure – Explicit exposure (event has occurred) – Implicit exposure (event is scheduled/forecast to occur) • Translation or Balance Sheet exposure (FX Subsidiary) • Economic or Operating exposure (embedded in business)
  • 24. PricewaterhouseCoopersFRM 101 24 Exposure Measurement • Who is responsible? – generally treasury – may be coordinates – must be risk committee • Data needs – large, see later slides • Timing – at least monthly or more frequent – following major change event • Tools – usual, VAR, MtM, Credit, Stress Testing, Scenario testing
  • 25. PricewaterhouseCoopersFRM 101 25 operational risk has two dimensions of Operational Risk People & Culture Business Process Control Survey Control Environment Risk Assessment Control Activities Information & Communication Monitoring Objective, Risk & Control Alignment Define Objectives Action Planning/ Accountabilities Assess Risks Analyze Controls "Soft Controls" "Hard Controls" Risk Indicators
  • 26. PricewaterhouseCoopersFRM 101 26 . . . Only if someone follows-up “What gets measured gets done . . .” Risk Indicators
  • 27. PricewaterhouseCoopersFRM 101 27 Most companies have data overload yet little insight into progress toward strategy or understanding of current operational related risks . . . – Indicators are additive and not prioritised or rationalised – Use what is readily available, not what is insightful – Data is often lagging not leading – Risk indicators do not have a context - few firms have an operational risk framework and there is little to no relationship of operational risk measures to key management reporting measures or compensation – Finally, there is no proven correlation between risk and indicators - so results are discounted Risk Indicators
  • 28. PricewaterhouseCoopersFRM 101 28 Asset and Liability Management Definition: “Asset/Liability Management is the set of actions and procedures designed to co- ordinate the organisation’s overall and individual business units contribution to its risks and financial position” Duties: 1. Devise and review strategies to maximise earnings and return on capital within agreed and measured levels of risks; 2. Monitor and discuss the status and results of agreed ALCO strategies and tactics; 3. Review outlooks affecting individual business units’ risk profile and contribution to revenue; 4. Review the current and prospective positions and monitor potential structural or market changes that can affect liquidity; 5. Review measurements reports on identified risks, including simulated exposures of risks to limits, asset mix/quality, credit, and impact of market shifts on overall organisation risk and financial position; 6. Develop parameters for pricing; 7. Provide for regular formal review of ALCO “model risk” assumptions, including an appropriate training for ALCO members, executive management and the Board of Directors.
  • 29. PricewaterhouseCoopersFRM 101 29 Reporting No FX Risk ? Base Gap -150 -100 -50 0 50 100 150 Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03M ar-03Apr-03M ay-03Jun-03Jul-03Aug-03Sep-03Oct-03Nov-03Dec-03Jan-04Feb-04M ar-04Apr-04M ay-04Jun-04 Sales Purchases Spot
  • 30. PricewaterhouseCoopersFRM 101 30 Reporting No FX Risk ? Pessimistic Gap -150 -100 -50 0 50 100 Jul-02Aug-02Sep-02O ct-02N ov-02D ec-02Jan-03Feb-03M ar-03Apr-03M ay-03Jun-03Jul-03Aug-03Sep-03O ct-03N ov-03D ec-03Jan-04Feb-04M ar-04Apr-04M ay-04Jun-04 Sales Purchases Spot
  • 31. PricewaterhouseCoopersFRM 101 31 No FX Risk Normal Sales -40 -20 0 20 40 60 80 100 120 140 160 Jul-02 Sep-02 N ov-02 Jan-03 M ar-03 M ay-03 Jul-03 Sep-03 N ov-03 Jan-04 M ar-04 M ay-04 Sales base Purchases Spot Profit
  • 32. PricewaterhouseCoopersFRM 101 32 No FX Risk Sales/Pessimistic -60 -40 -20 0 20 40 60 80 100 120 140 160 Jul-02 Sep-02 N ov-02 Jan-03 M ar-03 M ay-03 Jul-03 Sep-03 N ov-03 Jan-04 M ar-04 M ay-04 Sales base Spot Profit Base Sales Pessimistic Profit Pessimistic
  • 33. PricewaterhouseCoopersFRM 101 33 Lets look at Future Alco Gap Base -100 -50 0 50 100 150 Jul-02Aug-02Sep-02O ct-02N ov-02D ec-02Jan-03Feb-03M ar-03Apr-03M ay-03Jun-03Jul-03Aug-03Sep-03O ct-03N ov-03D ec-03Jan-04Feb-04M ar-04Apr-04M ay-04Jun-04 Sales Purchases Spot
  • 34. PricewaterhouseCoopersFRM 101 34 Lets look at Profit Profit Ranges -150 -100 -50 0 50 100 150 200 250 300 350 400 Jul-02Sep-02N ov-02Jan-03M ar-03M ay-03Jul-03Sep-03N ov-03Jan-04M ar-04M ay-04 Base Base Base High Base Low Opt Base Opt High Opt Low Pess Base Pess High Pess Low
  • 35. PricewaterhouseCoopersFRM 101 35 Lets look at Profit High/Expected/Low -150 -100 -50 0 50 100 150 200 250 300 350 400 Jul-02 Sep-02 N ov-02 Jan-03 M ar-03 M ay-03 Jul-03 Sep-03 N ov-03 Jan-04 M ar-04 M ay-04 High Base Low
  • 36. PricewaterhouseCoopersFRM 101 36 Increasing sophistication and data requirements 1. Rate Sensitive Imbalance (Rate Sensitive Assets Less Rate Sensitive Liabilities 2. Maturity/ Repricing Gap Analysis 3. Duration Analysis 4. Simulation of Net profit and Market Value of Portfolio The ability to assess the economic impact due to changes in FX exposure has become more sophisticated over time RX Risk Management
  • 37. PricewaterhouseCoopersFRM 101 37 Conclusion • Look at organisation as whole • Do not limit your horizons to treasury – The sales man could take you down – The banks sales man could take you down • Engage the GM’s at all level’s, the mine manager could effect you • There is no one solution, it should be within a range • Influence the upside • Cost and protect the downside • Put proper process in place • Educate • Educate

Editor's Notes

  1. Upon review of the definition used, although each was different in both words and categories, in fact the underlying meaning was generally the same. After much discussion, we reached a consensus on a statement of operational risk which was a positive definition….we agreed that you cant manage what something isnt, only what it is. It is comprehensive in scope, flexible enough for each firm to tailor to its own needs, and specifically includes external events (which some popular definitions do not). (read definition) Direct losses refer to the out of pocket losses such as lawsuits and penalties. Indirect losses refer to damage to reputation, business interruption, or other less easily quantifiable impacts but that are nevertheless important. Internally, operational risk is centered around processes, people and technology. External events include exposure to disasters such as hurricane or fire, systemic risks, changes to regulation, and reliance on external vendors/parties
  2. The corporate model is the emerging trend. There is a head of operational risk with a usually small staff, most often reporting to the chief risk officer. Business lines are responsible for risk management and may also have dedicated operational risk staff, working under a common framework with the head office function. Similarly, specialist units operate under a common framework. There will be an operational risk committee assuring resource allocation and maintaining awareness of major issues.
  3. Upon review of the definition used, although each was different in both words and categories, in fact the underlying meaning was generally the same. After much discussion, we reached a consensus on a statement of operational risk which was a positive definition….we agreed that you cant manage what something isnt, only what it is. It is comprehensive in scope, flexible enough for each firm to tailor to its own needs, and specifically includes external events (which some popular definitions do not). (read definition) Direct losses refer to the out of pocket losses such as lawsuits and penalties. Indirect losses refer to damage to reputation, business interruption, or other less easily quantifiable impacts but that are nevertheless important. Internally, operational risk is centered around processes, people and technology. External events include exposure to disasters such as hurricane or fire, systemic risks, changes to regulation, and reliance on external vendors/parties
  4. Slide Objective: Highlight the advantage of C&L approach: CSE draws out people issues, ORCA the process issues, Applied together with discipline, company gets best possible result. At C&L we break down risks into two broad categories (1) people & cultural and (2) business processes. A risk either exists because of poor values and organizational culture or poorly designed processes. We have designed two methods to evaluate these risks. The Control Culture Survey was designed to evaluate the organizational & cultural risks. We created a 55 question survey based on COSO to evaluate the control environment of the organization. This survey is both an indicator of risk and a devise to bench mark future improvements. The Objectives, Risk, & Controls Alignment (ORCA) process was designed to evaluate the specific processes. ORCA is based on COSO and begins with the identification of business objectives to determine the risks and then evaluate the controls to ensure they are adequate to mitigate the risks.
  5. Slide Objective: Highlight the advantage of C&L approach: CSE draws out people issues, ORCA the process issues, Applied together with discipline, company gets best possible result. At C&L we break down risks into two broad categories (1) people & cultural and (2) business processes. A risk either exists because of poor values and organizational culture or poorly designed processes. We have designed two methods to evaluate these risks. The Control Culture Survey was designed to evaluate the organizational & cultural risks. We created a 55 question survey based on COSO to evaluate the control environment of the organization. This survey is both an indicator of risk and a devise to bench mark future improvements. The Objectives, Risk, & Controls Alignment (ORCA) process was designed to evaluate the specific processes. ORCA is based on COSO and begins with the identification of business objectives to determine the risks and then evaluate the controls to ensure they are adequate to mitigate the risks.
  6. Slide Objective: Highlight the advantage of C&L approach: CSE draws out people issues, ORCA the process issues, Applied together with discipline, company gets best possible result. At C&L we break down risks into two broad categories (1) people & cultural and (2) business processes. A risk either exists because of poor values and organizational culture or poorly designed processes. We have designed two methods to evaluate these risks. The Control Culture Survey was designed to evaluate the organizational & cultural risks. We created a 55 question survey based on COSO to evaluate the control environment of the organization. This survey is both an indicator of risk and a devise to bench mark future improvements. The Objectives, Risk, & Controls Alignment (ORCA) process was designed to evaluate the specific processes. ORCA is based on COSO and begins with the identification of business objectives to determine the risks and then evaluate the controls to ensure they are adequate to mitigate the risks.