In the press...

Banks turn to op risk managers for answers to liquidity and counterparty risk issues
(December 12th 2008 / OpRisk & Compliance Editor's blog)

Operational risk managers are taking on responsibility for liquidity and counterparty risk management.

More and more operational risk managers are being asked to look at and take ownership of liquidity risk and counterparty risk. As budgets continue to be squeezed at more financial services firms, this trend looks likely to continue at least in Europe and North America. Convergence has become a buzz word again as firms seek to maximise efficiency while reducing costs, is the trend towards using operational risk managers as liquidity risk and counterparty risk managers simply a way of minimising resources, or, more likely, is it a demonstration of the unique skill set op risk managers have in measuring and managing qualitative risks?

But what about banks in Asia? They have generally be shielded from the worst of the fallout from the financial crisis, but it will make its presence felt even more into the new year, as the global flow of money continues to contract. Given that many banks, particularly those in Hong Kong, are now looking to go AMA, the role of the operational risk manager will be in the ascendancy; but do they have the necessary experience to deal with liquidity risk issues?

Any answers or comments would be very gratefully received!

Regards,

Victoria Pennington
Deputy Editor - OpRisk & Compliance
victoria.pennington@incisivemedia.com

Foreign investment and M&A raise op risk issues
(December 1st 2008 / OpRisk & Compliance Vol 9 No 12)

GLOBAL - The spate of mergers and acquisitions resulting from the financial turmoil should be sounding alarm bells for operational risk executives, especially at those firms involved.

"The recent flurry of foreign acquisitions and investments will have a significant impact on the regulatory risk both at the acquiring and the target firms," says Philippa Girling, of counsel at New Jersey law firm Garrity, Graham, Murphy, Garofalo & Flinn. "The global regulatory complexities that these firms must consider add an additional level of risk to these investments. An effective operational risk programme needs to work closely with the legal and regulatory functions to ensure that operational risk is not being raised without transparency and mitigation. Firms need to conduct careful reviews of their current and future regulatory requirements and seek expert advice to ensure compliance."

For example, Lehman Brothers had been pursuing Basel II compliance as incorporated into the US Securities and Exchange Commission's framework for consolidated supervised entities, but now the US part of Lehman is owned by Barclays Capital, while the Asia and European portions are owned by Nomura. Each of these entities is taking its own approach to Basel II. Barclays is complying with the Capital Requirements Directive under the UK Financial Services Authority (FSA), while Nomura is adopting the Japanese Financial Supervisory Agency's (FSA) Basel II rules. So the Lehman unit in the US must now transition to UK FSA Basel II rules, while the Asia and European units must comply with the Japanese FSA's rules.

The Japanese FSA takes a different view on some aspects of Basel II. Specifically, it requires the capture of op risk losses relating to loss in asset values and indirect costs, whereas the UK FSA has progressed into Pillar II and requires Icaap (Individual Capital Adequacy Assessment Process) activities.

There are many other examples where foreign investment or acquisition will require a review of Basel II programmes, including Mitsubishi UFJ's recent 21% equity investment in Morgan Stanley, Banco Santander's acquisition of Abbey National and Sovereign Bancorp, and BNP Paribas's acquisition of Fortis in Belgium, Luxembourg, Turkey and Poland.

"The interest in regulatory convergence should take into account the pressures placed on international firms as they attempt to navigate complex and sometimes conflicting regulatory requirements," says Girling. "Regulators have moved into the role of foreign policy and a more structured approach to the global regulatory landscape is certainly called for."

Other recent stories in OpRisk & Compliance:

US regulatory overhaul inches closer (January 30th 2009)
The top 50 faces of operational risk (January 1st 2009 / Vol 10 No 1)
And many more!

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