Management of Operational Risk Regulatory Capital Perspective Credit

Management of Operational Risk

Regulatory Capital Perspective • Credit Risk – Basel I (1987) • Market Risk – (Amendment 1998) • Credit Risk – Basel II (2005) • Operational Risk – Basel II (2005)

Regulatory Compliance Perspective • Anti Money Laundering • Undesirable Banking Practices • Product Regulation • Cross Border Business

Business Perspective • Return on Capital • Volatility Management • Value Optimization

Risk Response • Market response – Introduce new products • Equity futures • Foreign currency futures • Currency swaps • Options • Regulatory response – Prudential norms – Stringent provisioning norms – Corporate governance norms

Internal Fraud Management • Authorization of activities • Reporting of transactions • Measurement of bank positions – Regional level – National level – International level • Property evaluation • Regulatory compliance

Client Level Fraud Management • Credit reports • Monitoring worthless deposits • Measures to scrutinize extortion • Measures to scrutinize embezzlement • Measures to scrutinize robbery • Measures to scrutinize asset misappropriation

International Fraud Management • Verify accounts transfer • Verify accounts takeover • Penalize non-compliance • Penalize willful evasion • Identify accounts with irregular movements

External Fraud Management • Security to prevent robbery • Expert personnel to detect forgery • Systems security to prevent hacking • Safety measures to ensure information safety

Employee Practices • Adequate compensation • Benefits meeting market practices • Procedures in place for termination of employees • Organized employee relations • Employee health and safety rules • Legal support

Business Process Management • Enforce disclosure requirements (Know Your Customer (KYC)) • Ensure privacy of business practices • Avoid aggressive selling • Proper usage of confidential information • Legal provisions for lender liability

Customer Management • Investigate customer transactions without violating customer confidentiality requirements. • Scrutinize customer exposure limits. • Ensure legal support for disputes in terms of advisory services of banks. • Ensure error free development of banking products.

Systems Management • Hardware maintenance contracts. • Software updates and performance reports. • Telecommunication performance. • Ensure disruption free utility services. • Proper communication to ensure error free loading of data. • Ensure proper usage of operation models and systems

Enforcement Requirements • Customer permissions • Legal documentation • Complete procedures • Disclaimer clause where appropriate – Outsourcing – Customer dispute