1. Operational Risk Management
Maggi Boutelle
SVP Trust Securities Processing
Union Bank
FIRMA National Risk Management Training Conference
April, 2009

2. What is your operational risk forecast?
Sunny Skies?
Natural Disaster?

3. Our Current Environment
An “Economic” Tsunami?
Definition: A series of waves created when a body of water , such as an ocean, is rapidly displaced.

4. The “Waves” Bear Stearns collapses
Fannie Mae and Freddie Mac taken over by the government
Lehman falls
Merrill Lynch sold
WAMU seized
A.I.G saved
Massive fraud uncovered

5. Resulting Conditions
Banking and Securities Processing industry in turmoil
Unprecedented market and operational environment
Existing controls that failed
A downpour of losses

6. Were we prepared? No! Why Not? The New York Times, “Risk Management”
By Joe Nocera, January 4, 2009
“The whole intellectual edifice, however, collapsed in the summer of last year because the data input into the risk-management models generally covered only the past two decades, a period of euphoria.” A condition described as “Future-blindness. People tend not to be able to anticipate a future they have never personally experienced.”

7. Past Mistakes Failure to accurately identify potential risk
Lack of dedicated resources to manage risk and compliance
Pressure to do more with less
Inaccurately written or outdated control language

8. How to Learn from our Mistakes
Don’t go out without your umbrella!

9. Expect that the Worst Will Eventually Happen
The natural disaster!

10. Extreme Conditions in Operations
Pandemic, Earthquake, Firestorm, Flood, Civil Unrest
Information Security Breach
Employee Theft, Cover up
Customer Fraud
Counter Party Failure
Market Collapse
System Failure
Vendor Break Down
Severe Regulatory Requirements or Changes

11. Was it really a “miracle”?

12. The Eye of the Storm
The importance of a dedicated Risk Management & Compliance staff:
Is a strategic partnership
With business acumen and focus
Mutual understanding of the personalities

13. Pressure to do More with Less
Ensuring staffing levels are appropriate while maintaining costs
Track activity vs. FTE
Facilitate constant communication with Sales, Administration
Closely monitor market activity and trends

14. Preparing for the Storm
Maintain an accurate and current assessment of risk and controls:
Risk Management database
Contingency Planning
Published Policies
Workflows
Procedures (recovery)
Training (where applicable)

15. How to Weather Proof Your Business
Build a strong Risk Management Culture
Proactive and Collaborative Risk Management
Internal Testing and Active Follow-up
Addressing the “Us versus Them” Mentality
Employee Development (our biggest resource)
“Buy In” upstream and downstream
Ease of adaptability to regulatory and technological change

16. Proactive Risk Management
IDENTIFY – Ongoing assessment with all staff
MEASURE – Define impact, likelihood, direction and rationale for each risk
MONITOR – Implement constant communication methods to ensure all emerging risks are properly addressed
CONTROL – Documented action plan

17. “

18. Effectively Leverage Audits
Auditor
Control impact on productivity
Keep a balanced perspective
Facilitate open communication
Auditee
Get past denial
Pay attention to audit results
Participate
Team
Establish SMART Goals (specific, measureable, agreed upon, realistic and time-bound)

19. Address the “Us versus Them” Mentality
Partnering with your Risk Management Group
They are NOT the enemy!
Promote interdependency, reliability, develop trust

20. Employee Development Identify needs Promote training
Provide growth opportunities
Reward creativity
Encourage open and honest communication

21. Conclusion How to Keep Sunny Skies
Learn from past mistakes.
Plan for and expect the unimaginable.
Build a proactive and comprehensive risk management program designed to identify, measure, monitor and control risk.
Ensure thorough internal testing is on-going.
Partner with your Risk Management staff.
Develop your most valuable asset – your employees.

22. Thank you