Operational Risk for Asset Managers Introduction Bruce Offergelt

Basel Definition “The risk of loss from inadequate or failed internal processes, people and systems or from external events”

FSA Rules Qualitative guidance -Senior Management Arrangements, Systems and Controls (SYSC) -Integrated Prudential Sourcebook (PRU) Quantitative requirement - prudential capital adequacy requirements to be finalised

Qualitative Policy Timetable Feedback on CP142 issued March 2003 Near-Final Handbook Text later 2003 Implementation 2004 (12 months later)

Capital Adequacy Framework  Risk Based  Income used as proxy for Operational Risk  Capital Requirement = Income x Risk Calibration Factor  3 approaches  Basic Indicator  Standardised  Advanced Management Approach (AMA)

Quantitative Timetable Basel CP3May 2003 EU CAD3June 2003 FSA CP on ImplementationJuly 2003 AccordOct 2003 Draft PSB TextMid 2004 ImplementationEnd 2006

Issues Criteria Calibration Factors Future role of EBR Incentivisation Partial Use Role of Insurance

Next Steps Publication of CP3 and EU CAD3 Data collection for asset managers