Managing Risks in Financial Services: Case Study

Operational Risk – Diagnosis of the operational risk management framework regarding Basel II/CRD requirements for an International Financing Institution

The Issue

As a top player within the financial markets, an International Financing Institution ("IFI") was willing to reinforce its current operational risk management framework by implementing the Advanced Measurement Approach (AMA) of Basel II.

In this context, the IFI requested the assistance of PwC to conduct a diagnosis in order to:

• Assess the project feasibility and identify data required for modelling
• Assess the operational risk management framework regarding the Basel II requirements
• Identify the main actions to be undertaken to comply with these requirements

Our Approach

Our diagnosis consisted in a gap analysis of Basel II/CRD requirements and best practice observations on the one hand, and the current operational risk management framework of the bank on the other hand.

The scope of the diagnosis included a review of the qualitative and quantitative policies, procedures and controls of the bank, its operational risk management function and other functions involved in the application for model recognition.

We then provided assistance to the IFI with the preparation of a business case summarising the findings of our diagnosis for a presentation to the Management Committee including:

• Presentation of Basel II AMA operational risk requirements
• Presentation of the gap analysis’ results
• Benchmarking with other banks aiming at AMA
• High level planning and assessment of requirements for the IFI in terms of resources and costs

The Outcome

Our knowledge and experience of operational risk management framework implementation gained from other similar projects allowed us to deliver, in addition to our diagnosis, a set of best practice based recommendations and an action plan that enabled the IFI to implement the AMA successfully and efficiently.