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Operational Risk and Regulatory Compliance in US and European Financial ServicesPublished by: Datamonitor Published: Aug. 16, 2004 - 68 Pages Table of ContentsTABLE OF CONTENTS CHAPTER 1 EXECUTIVE SUMMARY 3 Introduction / market context 3 Areas impacted and where efforts are focused 3 Approach, progress and barriers in compliance efforts 4 Target IT framework for enterprise operational risk management 6 The future decoded 7 OpRisk’s broader reach covers a multitude of sins - an opportunity assessment 7 Strategic trends and implications 8 Action points for financial institutions 9 Action points for vendors 11 Conclusion - OpRisk functions to evolve from an internal regulator to a risk advisor role? 12 CHAPTER 2 INTRODUCTION 20 CHAPTER 3 MARKET CONTEXT 21 Operational risk in the context of emerging regulations 21 Sarbanes-Oxley (SOX) 21 Basel II 22 Other regulations 23 Business drivers 24 Operational risk categorization and priority areas 26 Operational risk management lifecycle 28 Operational risk initiatives 29 Areas impacted and where efforts are focused 29 Approach, progress and barriers in compliance efforts 31 Target IT framework for enterprise operational risk management 35 CHAPTER 4 THE FUTURE DECODED 38 Overall OpRisk spending is small in relative terms, but real opportunities lie in operational improvement initiatives 38 US operational risk spending 39 Europe operational risk spending 40 Basel II OpRisk software spend gradual but may undergo renewal from 2005 41 European Basel II (OpRisk) and financial reporting spend by source 41 US Basel II (OpRisk) and SOX spending by source 43 OpRisk’s broader reach covers a multitude of sins - an opportunity assessment 45 Resiliency, business continuity and crisis management 45 External fraud 46 Post-trade processing and settlement 47 IT security 47 Integrity of financial reporting 48 Compliant market practices 49 Operational risk capital allocation (Basel II and economic capital) 49 CHAPTER 5 COMPETITIVE DYNAMICS 51 Operational risk management - solution chain and coverage 51 Strategic developments and implications 53 Basel II and Sarbanes-Oxley (SOX) 54 Outsourcing and operational risk 55 Action points for financial institutions 56 Action points for vendors 60 CHAPTER 6 APPENDIX 65 Definitions 65 Relevant readings 69 SPP writing team 69 LIST OF TABLES Table 1: Overall operational risk (Basel II and SOX) - US vs Europe, 2002-2006 38 Table 2: Europe - total OpRisk spend by source (Basel II & financial reporting / SOX), 2002-2006 41 Table 3: Europe - total OpRisk spend by source (Basel II only), 2002-2006 42 Table 4: US OpRisk spend by source (Basel II and SOX), 2002-2006 43 Table 5: US OpRisk spend by source (financial reporting / SOX only), 2002-2006 44 LIST OF FIGURES Figure 1: Operational risk initiatives 4 Figure 2: Target IT framework for enterprise operational risk 6 Figure 3: Operational risk - opportunities for technology 7 Figure 4: Evolution of operational risk management 8 Figure 5: Operational risk linkages with other risks 9 Figure 6: Integrating loss data, assessments, risk indicators & remedial actions 10 Figure 7: Operational risk group’s evolving future role? 13 Figure 8: Basel II overview 22 Figure 9: Basel II Operational Risk 23 Figure 10: Approach for addressing operational risk 26 Figure 11: Operational risk management lifecycle 28 Figure 12: Operational risk initiatives 29 Figure 13: Operational risk organization 32 Figure 14: Target IT framework for enterprise operational risk 35 Figure 15: Overall operational risk (Basel II and SOX) - US vs Europe, 2002-2006 38 Figure 16: US OpRisk spending, 2002-2006 39 Figure 17: Europe OpRisk spending, 2002-2006 40 Figure 18: Europe - total OpRisk spend by source (Basel II & financial reporting / SOX), 2002-2006 41 Figure 19: US OpRisk spend by source (Basel II and SOX), 2002-2006 43 Figure 20: US OpRisk spend by source (financial reporting / SOX only), 2002-2006 44 Figure 21: Operational risk - opportunities for technology 45 Figure 22: Operational risk solution chain and coverage 51 Figure 23: Evolution of operational risk management 53 Figure 24: Basel II vs SOX - areas of overlap 54 Figure 25: Historical vs predictive KRIs 56 Figure 27: Operational risk linkages with other risks 57 Figure 28: Linking up loss data, assessments, risk indicators & remedial actions 58 AbstractIntroductionOperational risk is now discussed in the context of regulation like Basel II & SOX, but it is not a new discipline. What is new is the formalization of methods to identify, measure & mitigate risks. The sector is expected to move beyond 'first phase' OpRisk activities. What are the next phase developments? How should banks design next generation architectures? Which areas can vendors add value in? Scope Covers operational risk management within retail & corporate banking, financial markets and asset management sectors Insights formulated from discussions with more than 15 executives within Tier-1 US & European institutions & leading OpRisk solution providers Includes OpRisk related global regulations such as Basel II, Sarbanes Oxley, the US Patriot Act and other money laundering legislations. Highlights From 2002-2006, the combined OpRisk spend in US and Europe is expected to grow at 6.7% CAGR, peaking at around $950m from 2005 onwards. Overall OpRisk spending related to measurement & analytics is 'small' in relative terms, but real opportunities remain in operational improvement activities, when institutions move beyond putting in place the infrastructure to assess & measure OpRisk. Financial institutions need to adopt open practices of consolidating intellectual capital & disseminating knowledge related to OpRisk. The ability to integrate, extract and use risk-related insights from internal & external operating environments will be a key success factor in building risk-aware cultures within their organizations. Reasons to Purchase Gain key insights into activity areas and progress within different financial institutions, and understand overlap between SOX and Basel II Understand strategic implications and 'next phase' opportunities based on evolving market, competitive & financial institution end-user dynamics For financial institutions, obtain key action points to plan and streamline operational risk & compliance initiatives Get Full Details About This Report >> |
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