avantage London - Operational Risk Appetite:Turning a "Black Art" into a practical reality
The business breakfast function was well attended confirming the topic continues to challenge risk professionals to determine how best to adopt a pragmatic approach to operational risk appetite. Interestingly there was interest across banks, insurance companies and non financial instituions indicating it is a challenge which is business lead as much as it is about reponding to a regulatory requirement. l
The session was introduced by Andrew Nord, a Partner in avantage Reply limited. He referred to his experience where many (but no all) of his clients had a Board approved statement of risk appetite but that there was frequently a disconnect between this and the business planning and budget setting process. The challenge with cascading a statement of risk appetite often started from risk commanding a voice in this process taking a forward looking rather that back word looking perspective.
Euan Ramsay, a Managing Consultant with avantage Reply Limited spoke of the process to develop a risk appetite framework, focusing initially on how to draw the link between strategy and risk, before then moving to discuss the different ways of expressing risk appetite including using absolute figures, risk and control assessments, risk indicators, using numbers of losses, and economic capital. He concluded by providing some top tips - referring to the practice note written on the topic "Developing an Operational Risk Appetite - Turning a Black Art into Practical Reality" written by his colleague Andrew Shiels.
James Elder, a risk professional with recent insurance and banking expertise including with respect to risk appetite, explained that as operational risk is inherently different from credit and market risk it therefore needs to be approached differently. He noted it was often harder to articulate operational risk for instance. He considered that whilst terminology should be consistent that we should focus on how the framework is used not merely the terminology used. He then went on to provide examples of how a balanced approach to using quantitative and qualitative approaches could work in practice.
His concluding remarks were reserved to emphasising that evidencing better risk based decisions is the key outcome of a risk appetite framework - getting the business to live and breath it in their decision making was imperative. Further, we should accept we shan't get it right first time. He shared implementation tips from his experience over a number of assignments.
The session concluded with a discussion involving the presenters and guests.
to download a copy of presentation:
Euan Ramsays presentation here
James Elders presentation here
