Risknet JulyAugust 2016

Best Compliance Product

Best Compliance Product

The Operational Risk Awards honour excellence in op risk management regulation and risk management service provision Firms were invited to submit entries between February and April with the fnal winners chosen using a

twin-track methodology during May (see box below) As always this yearrsquos awards refect the ebb and fow of industry trends

in op risk One of those is the Basel Committee on Banking Supervisionrsquos decision to propose scrapping the advanced measurement approach ndash the own-models approach to op risk capital which efectively allows banks that can model their op risk to hold smaller capital bufers

Op risk practitioners worry about the adverse impact this could have on banksrsquo future investment in op risk modelling Going forward they fear it will lead frms to place less emphasis on modelling and techniques such as scenario analysis

But this yearrsquos Regulator of the Year the Australian Prudential Regula-tion Authority (Apra) has always valued op risk modelling and scenario analysis in their own right It is keen to stress their use as tools for improving frmsrsquo understanding of op risk and bringing the views of frontline businesspeople and op risk professionals together Tis emphasis on the value of modelling has not gone unheeded by Australiarsquos banks some of which say they plan to continue investing to better comprehend their op risk exposures

Other award winners also see the value of op risk modelling despite the Basel Committeersquos controversial proposal Tis yearrsquos Paper of the Year award goes to Riaan de Jongh Tertius de Wet Kevin Panman and Helgard Raubenheimer ndash researchers at South Africarsquos North-West University and Stellenbosch University ndash who appear to have found an efective shortcut for approximating op risk capital Te technique promises eye-catching benefts both in terms of time and computing power

After an explosion of manipulation mis-selling and rogue trading scandals earlier this decade many banks have sought to renew their operational risk programmes and move towards a bigger focus on culture and conduct Tis yearrsquos Bank of the Year UBS is a prime example

Tere a $23 billion rogue trading loss caused by London-based synthetic equities trader Kweku Adoboli in 2011 presaged a major

overhaul of risk and compliance says James Oates global head of compliance and operational risk control at UBS in New York Since then the bank has reorganised its risk and compliance functions devised a new frm-wide risk taxonomy revamped its risk and control assessments and stepped up its monitoring of employee behaviour and conduct

While banks have always been relatively adroit when it comes to operational risk management buy-side institutions have also grown increasingly sophisticated

For the frst time this yearrsquos Operational Risk Awards feature the categories of Asset Manager of the Year and Insurer of the Year Both of our winners New York-based asset manager AllianceBernstein and US-based insurer MassMutual provide strong examples of op risk management in action across the broader fnancial services industry

Methodology

The awards were divided into practitioner and vendor categories Practitioner categories comprising Bank of the Year Asset Manager of the Year Insurer of the Year and Regulator of the Year were judged by a panel of Risknet journalists who undertook extensive due diligence including follow-up interviews with the com-panies involved

Vendor categories including awards for law frms consultancies and technology providers were judged by a carefully selected panel of op risk practitioners and other industry experts

In all cases judges considered the extent to which each entrant had dem-onstrated excellence and met the criteria laid out for the category or categories entered Judges were allowed to make their fnal decisions based on all of the information at their disposal and not solely on the details contained in the entry

The only exception to this twin-track process was the award for Paper of the year This award is judged by the editorial board of the Journal of Operational Risk and has traditionally been used to recognise an outstanding contribution to the publication each year

Cover image ShutterstockToskanaINC Awards ceremony photos Lucy Stewart

risknetrisknet 11

Best Compliance Product

The Operational Risk Awards honour excellence in op risk management regulation and risk management service provision Firms were invited to submit entries between February and April with the fnal winners chosen using a

twin-track methodology during May (see box below) As always this yearrsquos awards refect the ebb and fow of industry trends

in op risk One of those is the Basel Committee on Banking Supervisionrsquos decision to propose scrapping the advanced measurement approach ndash the own-models approach to op risk capital which efectively allows banks that can model their op risk to hold smaller capital bufers

Op risk practitioners worry about the adverse impact this could have on banksrsquo future investment in op risk modelling Going forward they fear it will lead frms to place less emphasis on modelling and techniques such as scenario analysis

But this yearrsquos Regulator of the Year the Australian Prudential Regula-tion Authority (Apra) has always valued op risk modelling and scenario analysis in their own right It is keen to stress their use as tools for improving frmsrsquo understanding of op risk and bringing the views of frontline businesspeople and op risk professionals together Tis emphasis on the value of modelling has not gone unheeded by Australiarsquos banks some of which say they plan to continue investing to better comprehend their op risk exposures

Other award winners also see the value of op risk modelling despite the Basel Committeersquos controversial proposal Tis yearrsquos Paper of the Year award goes to Riaan de Jongh Tertius de Wet Kevin Panman and Helgard Raubenheimer ndash researchers at South Africarsquos North-West University and Stellenbosch University ndash who appear to have found an efective shortcut for approximating op risk capital Te technique promises eye-catching benefts both in terms of time and computing power

After an explosion of manipulation mis-selling and rogue trading scandals earlier this decade many banks have sought to renew their operational risk programmes and move towards a bigger focus on culture and conduct Tis yearrsquos Bank of the Year UBS is a prime example

Tere a $23 billion rogue trading loss caused by London-based synthetic equities trader Kweku Adoboli in 2011 presaged a major

overhaul of risk and compliance says James Oates global head of compliance and operational risk control at UBS in New York Since then the bank has reorganised its risk and compliance functions devised a new frm-wide risk taxonomy revamped its risk and control assessments and stepped up its monitoring of employee behaviour and conduct

While banks have always been relatively adroit when it comes to operational risk management buy-side institutions have also grown increasingly sophisticated

For the frst time this yearrsquos Operational Risk Awards feature the categories of Asset Manager of the Year and Insurer of the Year Both of our winners New York-based asset manager AllianceBernstein and US-based insurer MassMutual provide strong examples of op risk management in action across the broader fnancial services industry

Methodology

The awards were divided into practitioner and vendor categories Practitioner categories comprising Bank of the Year Asset Manager of the Year Insurer of the Year and Regulator of the Year were judged by a panel of Risknet journalists who undertook extensive due diligence including follow-up interviews with the com-panies involved

Vendor categories including awards for law frms consultancies and technology providers were judged by a carefully selected panel of op risk practitioners and other industry experts

In all cases judges considered the extent to which each entrant had dem-onstrated excellence and met the criteria laid out for the category or categories entered Judges were allowed to make their fnal decisions based on all of the information at their disposal and not solely on the details contained in the entry

The only exception to this twin-track process was the award for Paper of the year This award is judged by the editorial board of the Journal of Operational Risk and has traditionally been used to recognise an outstanding contribution to the publication each year

Cover image ShutterstockToskanaINC Awards ceremony photos Lucy Stewart

risknetrisknet 11

Best Compliance Product

Oracle Financial Services Analytical Applications

As volumes of transaction and client data grow seemingly exponentially so too do the challenges that governance and risk compliance

teams face in making sense of it all and in detecting any fraud or money laundering that may be going on

ldquoFor a compliance application itrsquos all about understanding the datardquo says Don Ryu director of product management at Oracle Financial Services Analytical Applications ldquoYou can have the best visualisation the best analytic modelling tools but if you donrsquot have control over the data theyrsquore no userdquo

At the foundation of Oraclersquos oferings across all 46 of its fnancial services analytical applications ndash including its Financial Crime and Compliance Management product ndash is a common analytical data model As Ryu explains the California-based technology frm takes a bottom-up approach to data modelling ensuring the data is well structured and standardised allowing it to be shared almost seamlessly between clients and applications

ldquoTe data model is pretty much set across clients so the usage of data is consistent We take a ground-up approach you can take data from client A and take it to client Brsquos site run the analytics and get 99 of the same results Tatrsquos a very unique feature that only our product ofersrdquo says Ryu

A particular challenge fnancial institutions face in dealing with increasing volumes of data is the growing number of lsquofalse positiversquo alarms produced by many risk-monitoring systems

ldquoA theme for our clients is around improving the productivity of the compliance functionrdquo says Ryu Tis means ensuring applications

provide accurate timely information with context that allows the compliance team to identify suspicious activity

Te Oracle Financial Services Behavior Detection Platform uses link analysis algorithms that are able to build networks of entities based on common attributes such as addresses and tax identifers and types of transaction activity which can give users visibility into networks of which they previously may have been unaware

ldquoBy defnition money laundering cannot be identifed by a single transactionrdquo Ryu says ldquoItrsquos a group of activities with a specifc intent to hide the source of funds Our application has strong correlation engine capability to bring relevant cases together to provide the context neededrdquo

ldquoYou can take data from client A and take it to client Brsquos site run the analytics and get 99 of the same resultsThatrsquos a very unique feature that only our product offersrdquo Don Ryu Oracle Financial Services Analytical Applications

L to R Don Ryu director of product management and Kannan Krishnamurthi consulting practice director ndash Europe who collected Oracle FSAArsquos award

Oracle is also investing in the use of non-traditional data sources such as negative news fow emails and social media information to add context ndash to aid any internal observation and to provide to regulatory authorities

ldquoClients also want to see overall robustness how much can you trust the system and ensure it provides full data lineage that you can provide to regulators or to internal or external auditrdquo says Ryu

As he notes fnancial crime protection doesnrsquot stop with detection An important feature of Oraclersquos crime and compliance ofering is the interface and workfow that allows for efcient investigation and resolution of alerts and cases

ldquoAlert management case management all the way through to regulatory reports are all managed in a single place and are transferred automatically reducing the possibility of manual errorrdquo he says ldquoItrsquos all about delivering the right productivity to usersrdquo

risknet JulyAugust 2016 2