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About the course
Learn the latest modern risk management, markets & operational risk techniques
Financial institutions have been managing their risks from inception. But the nature of risk management is fundamentally changing within these institutions. No longer is it seen purely as a control mechanism - but as a critical input into the basic business question: am I earning enough revenue out of this transaction to compensate me for the additional risks I am taking? This concept permeates all the leading financial institutions.
Every transaction, product and service needs to be assessed in terms of the increase in risk to the institution, with the assurance that the pricing of that transaction will generate a suitable return. Budgets should be allocated, and performances measured, on the basis of revenue earned per unit of risk generated. Such a risk culture is reinforced by the Basel Accord.
This requires the banks to allocate regulatory capital against the major components of risk, using either regulatory or, more likely, internal models. In the recent Western banking crisis and subsequent economic downturn, many financial institutions lost large amounts of money and had to be assisted by governments. Was this a failure of risk management, and if so, why? This course will discuss what happened, and how some institutions actually came out of the credit crisis with enhanced reputations. This course is designed to provide delegates firstly with a high-level overview of modern risk management, including a breakdown of the new regulations, and how banks are managing compliance with these. This is then followed by an indepth examination of the techniques and management structures used to measure and control risk, including a detailed discussion on measuring risk across all the major classes: market, credit and operational.
This unique course follows closely the proposed structure of the new regulations, and is designed to enhance your knowledge and expertise:
- Why Risk Management has become so crucial to Financial Institutions
- What decisions you need to make when implementing an appropriate risk management framework
- How should Risk Management be organised
- Estimate the level of Economic Capital required to underpin any transaction
- Estimate how much Economic Capital does an institution require?
- Analyse the major forms of risk generated by financial institutions, particularly within a ValueatRisk framework
- How to identify ALL risks you face
- What are the to the measurement of Credit Risk, and how this is impacted by IFRS9
- How to implement an Operational Risk methodology successfully
- How to successfully implement stress testing and scenarios for your most material risks
- How to implement a risk-based approach to any business challenge/decision
- How to test if your methodologies for Operational Risk measurement work, and how to fix them when they don’t
- How to model risk: and how to mitigate the really big events that may bring you down!
- How to build an appropriate ICAAP, and what to do in preparation for the SReP
- A wide range of real-life case studies discussing the lessons we should learn from these failed institutions could the same events happen at your firm?
- Computer simulations of the latest techniques to model market, credit and operational risk
- What is risk management and why is it important?
- The entire history of risk management explained in 5 minutes
- The current state of risk management according to surveys and empirical evidence
- How do you know if you are managing risk effectively?
- How much value do we add when we get it right?
- What is the cost when we get it wrong? (using examples from the past 3 years)
Why existing methods fail
- Current methods of assessing risk, and why they are causing severe consequences for most institutions
- Key problems of risk management that need to be addressed in your firm
- How to identify the problem areas in your own firm and how to fix them
- Why did regulators and legislators intervene?
- What are their objectives, and how can you plan accordingly for the anticipated future changes?
Risk Management: Critical points of understanding
- Defining ‘Risk’ and ‘Risk Management’, and why this is important
- Risk Management and the various forms of exposure: how to identify ALL risks your firm faces
- Market risk
- What are the forms of market risk? (including interest rates, FX,
- How to model them and why?
- How to ensure that your capital adequacy is optimised
- Effective hedging, and how this is accounted for
- Credit Risk
- How to model your credit risk
- How to implement changes as a result of IFRS9
- Understanding and using PD, EAD, and LGD in secured and unsecured lending
- Operational Risk
- Why this is becoming one of the most material risk segments for financial firms
- What are the most material operational risks, and how do we know ‘what we don’t know’.
- Understanding how to manage reputational, conduct, compliance, and model ‘risk’
- Understanding Value at Risk (VaR), PD, EAD and LGD
- Key controls: how to identify them, create them, and test for adequacy and effectiveness
- Enterprise Risk Management: what is it, why adopt it, how to implement it.
- How to predict events in market, credit and operational risk, and how to prevent/mitigate them
- What are the relevant three lines of defence models
- The roles and responsibilities involved in risk management
- Learn how to assess the value of good risk management in the attendees' individual organisations. Each attendee will use some simple tools and tips to assess the value of getting it right in their own organisation, and then work on articulating that when they return.
- Discuss and debate what risk is, and why many of the current thinking is flawed.
- Learn how to identify all risks in your own organisation with a simple exercise.
- Case studies for Market, Credit and Op risk will be used to demo when its done properly and poorly.
- Discuss and debate the pros and cons of the three lines of defence model, how to spot the problems, and how to fix them.
- The attendees will review and present the roles and responsibilities, followed by a challenge and discussion session.
Fundamentals of good risk management
- What is in scope of risk management
- What are the Principles and aims of risk management
- Review of the relevant Risk management standards
- Risk classifications and how to use them
- Risk assessment techniques
- Psychology of risk, and why the experts get it wrong
- Risk metrics
- Causes, consequences, and controls
- Assessing the reduction in losses
- Assessing the improvements in income
- Your control environment and how to measure/manage it
- How to control risk
- Insurance and other means of transferring risk
- Stress testing and scenario analysis (using external and internal supporting data)
- Key Performance Indicators and their link to risk
- Key Risk Indicators and how to create and report them
- Workshop for each attendee on their own risk assessment techniques, allowing them to compare and contrast with some benchmarks (I will provide), in conjunction with anything that other attendees wish to share.
- Using tools and techniques to design their own risk assessment technique for their own organisation.
- Practise and discussion relating to key controls (including Sox and external auditors' requirements)
- Practice using tools to assess the reduction in losses and the improvements in income.
- How to complete scenario analysis using an example of their own choosing.
- KRI/KPI Discussion and challenge session using a case study from Europe.
Measuring and reporting risk
- Why do we measure? (If you think you know, think again)
- How to measure anything
- Why existing methods are failing
- Building risk profiles
- Monte Carlo: a brief introduction, and some practical examples of how to implement this
- How to report risk
- Risk appetite: How to define it, articulate it, and measure performance against it
- Tolerances and the difference to risk appetite
- Making decisions: the foundation of risk management. Are your decisions correct? How do you know?
- Quick quiz to demonstrate the value and importance of measurement
- Discussion and debate on measuring things, with examples
- Demonstration of why current methods fail, allowing them to use their own examples also
- Attendees will build their own risk profile based on a risk of their choosing, or we can provide an example.
- Case studies will be used to examine how to implement risk appetite properly and poorly. Both are important to understand.
The objective of this session is to explore how modern risk management may contribute to the overall strategic development of the institution. In particular, what is the acceptable trade-off between the return on a transaction and the risk it incurs for the bank? A number of different aspects will be reviewed, and current global “best practice” will be discussed.
Market Risk Modeling and Assessment
- Value-at-Risk (VaR)
- Measuring and managing interest rate, FX and other related market risks
- How can these be modelled and how can we predict future events?
Credit Risk Management and Measurement
- Ratings agency ratings and what they mean
- Recommended risk weights
- Risk weighting of various portfolio exposure types
- Value-at-Risk for Credit Risk: CreditVaR
- PD, EAD, LGD, and the impact of IFRS9
- CreditVaR for portfolios
- Establishing provisions and capital
- Stress testing, tools and techniques
Operational Risk Measurement
- Definition of Operational Risk Exposure under the Basel Accord
- Operational Risk Approaches
- Capital Adequacy and its increasing importance
- Managing operational loss and event data
- Defining Direct and Indirect Losses
- Key Risk Indicators KRIs
- Using scenarios to determine capital adequacy requirements
- Control self-assessment exercises (CSAs)
- Management of risks within third party providers
- Why you need AAF 01/06 and other audited control reports
- Attendees may use examples provided, or ones of their own choosing to calculate required capital.
- Attendees will practice the tips and techniques to achieve the correct balance of risk and capital.
- Attendees will use simple tools and techniques to assess losses.
- Attendees will complete a simple control environment test to see how well they are performing. This can remain private or they can share and discuss with the wider group for feedback.
- Case studies of using audited controls reports and how these address regulatory concerns around use of third parties.
- The 2007 crisis, and lessons learned
- Basel (1-4), and other post 2007 crisis changes
- How the regulators have changed the way they supervise
- How your risk management approach is being assessed by regulators
- Tips and techniques to improve your relationship with regulators
- What is coming next for regulators, and how can you prepare accordingly
ICAAP and SReP
It is a regulatory requirement that banks have to submit an Internal Capital Adequacy Assessment report to their supervisor each year. However, the Accord is very low on precise details as to what should go into this report. This session will go through the production of an ICAAP in detail, with some real examples.
- Objective of the ICAAP – with the concept of proportionality
- What should be covered and why? (using examples)
- Linking the ICAAP to the longterm strategic plans of the bank
- Identifying all material risks
- Assessing all material risks How to handle soft risks such as reputational, liquidity or fraud risks
- Discussing risk mitigation
- Other components of an ICAAP
- Things to do, and things to avoid!!
- Beyond the Accord: Risk and Return
Risk culture and its importance in the performance of your organisation
- Why is culture important?
- How to define and measure it
- How do you compare? (some useful benchmarks)
- Practical steps you can take to improve your risk culture
- How to organise your first, second and third line functions
- How to organise your governance and reporting
- Discussion and debate on changing shape of regulation and how to benefit from the opportunities this provides.
- Practice using tips and techniques to prepare for a regulatory challenge session (proactive engagement session).
- Practical assessment of culture in their own organisation, with benchmarks provided afterwards.
- Action planning session to address the shortfall.
- Practice and presentation on how to organise governance and reporting, using case studies.
Who should attend
- Risk managers
- CFOs and CROs
- Treasury professionals
- Audit and IT personnel
- Basel team members
Trust the experts
Allan is a highly experienced leader, speaker, and risk professional. He has advised and held some of the most senior risk roles in global retail banks, fund managers, and investment banks, including Barclays, Lloyds, Fidelity, JP Morgan, Mellon, Citizens, and is currently a trusted adviser to RB...