Copyright The Asian Banker All rights reserved 1 The Asian Banker This paper “Fraud is the key issue in operational risk among Asian banks”
Copyright The Asian Banker All rights reserved 2 Key discussion notes Interest and ambition in operational risk measurement is surprisingly at an infant level despite the potential cost respectively saving Awareness rising mostly through rise in fraudulent transactions and event related issues Incremental losses in retail banking add up but high value low frequency events are the most dangerous aspect that is not well managed Although most solutions are IT based, insufficient spending is considered
Copyright The Asian Banker All rights reserved 3 Predictive modelling techniques are not sufficiently adopted to detect fraudulent transactions, and 30% of banks have yet to establish automated authorization systems Please indicate the extent to which you are using each fraud detection method below Source: The Asian Banker Consumer Credit Practice Survey 2007
Copyright The Asian Banker All rights reserved 4 Historical data references alone as the primary scoring mechanisms alone in emerging markets is insufficient. 80% of emerging market banks has difficulty finding reliable data Source: The Asian Banker Consumer Credit Practice Survey 2007
Copyright The Asian Banker All rights reserved Risk Management External and internal fraud is a key concern among Asian banks Average fraud levels in Asia exceeds world average Source: Asian Banker Research
Copyright The Asian Banker All rights reserved 6 Fraud detection capabilities are forced to evolve as financial fraud becomes more sophisticated Evolution of consumer credit / payment fraud Source: Asian Banker Research
Copyright The Asian Banker All rights reserved 7 Operational risk tools are highly IT driven Establish team High level assessment & diagnostic review Assessment of detailed requirements Design and build systems/ models Implementation and integration Testing and validation Project planning 30 days window Ops Risk Committee decides “What is the most important Op risk infrastructure must the bank put in place?” “What tools can be implemented on an enterprise wide scale?” 2003 Pilot Prog: critical units Retail Treasury Audit Rating part of KPIs Stabilisation 2H member Ops Risk Taskforce appointed by Committee Processing & Services Audits BUs IT HR & others 90 days window Controlled Self- Assessment Group Risk Key Events Reporting Group Risk Key Risk Indicators Processing & Services Policies IT Rep. Overall Definitions Group Risk Source: Asian Banker Research
Copyright The Asian Banker All rights reserved 8 “The banks we like” Banks which set following Key Risk Indicators P&S replicate knowledge on enterprise wide level Top-down assessment of key exposure spots Qualitative assessment of key risk issues – Customer complains – Outsourcing risks – Settlement failures – Staff turnover – Documentation breaks – General Ledger accounts
Copyright The Asian Banker All rights reserved 9 The questions we ask Can IT investment really improve operational risk control capability?
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