Dear,
Last years, many scandals have come to light in the Financial Industry; scandals like Libor and Forex manipulations, Tax Evasion practices, etc.
Coinciding with the imposition of fines to some of the biggest and most powerful banks for these compliance violations, we’ve seen a new concept called Conduct Risk, showing up in banking publications, speeches and forums. But what’s exactly the “Conduct Risk”?
We still don't have a regulatory definition of what’s Conduct Risk, but several approximations to the concept have been proposed by regulators in different jurisdictions.
Personally, I like the description proposed by Daniel K. Tarullo, member of the Board of Governors of the Federal Reserve Board and chairman of the Federal Financial Institutions Examination Council. In his speech "Reforming Culture and Behavior in the Financial Services Industry" of October last year. He described it as the risk of malfunctioning controls and operations due to unethical practices.
http://www.federalreserve.gov/newsevents/speech/tarullo20141020a.htm
The Basel Committee on Banking Supervision is already aware of the necessity of building a regulatory framework addressed to Conduct Risk and recently issued the consultative document "Corporate governance principles for banks".
http://www.bis.org/publ/bcbs294.htm
Before that, on 2013, the British Financial Conduct Authority provided a very interesting guide for a company to asses Conduct Risk.
https://www.fca.org.uk/static/fca/documents/fca-risk-outlook-2013.pdf
Banks are responsible of building systems preventing Conduct Risk and unethical behavior. Considering that settlement costs of unethical related activities in recent years are more than 21.000 Million Euros, it looks like an interesting opportunity.
The broad scope of Conduct Risk makes difficult to describe a holistic architecture for managing it; from cases of banks being fined for selling products considered too complex for the risk profile of some of their customers; to banks receiving fines for money laundry or supporting tax evasion.
In my opinion, there’s no better candidate to fulfill the requirement than the Integrated Financial and Risk Architecture of Bank Analyzer. Let me explain you why.
In the same way banks are moving from silo-style to centralized holistic systems for the management of Credit, Market or Liquidity risk, the same rule applies for defining the architecture of a Conduct Risk System.
A holistic management of Conduct Risk requires an integrated vision of economic Facts and the interpretation of those Facts, and this is in the core values of the Integrated Financial and Risk Architecture of Bank Analyzer.
The Source Data Layer is a centralized container of Facts, mirroring economic events happening in the Transactional Banking System. But the Source Data Layer also requires that economic Facts have been homogenized in a single Data Model which makes feasible to track those economic Facts amongst individual processes.
For instance; while is a common issue that banks can have several operational systems with different versions of their account holders ratings, in Bank Analyzer we enjoy a unified vision of the Business Partner and all his attributes.
How can the bank claim that it has run a proper analysis of the Risk Profile of its customers if it’s unable of storing a Single Truth of their Rating?
We don’t have a Conduct Risk Analyzer in Bank Analyzer yet, but we can take advantage of the Open Architecture of the Integrated Financial and Risk Architecture for connecting with other systems fulfilling the specific functions.
For instance, many banks are building Anti-Money-Laundering systems tracking suspicious transactions in their silo-style, poorly integrated network of transactional systems.
As we have all the Business Transactions in the Bank Analyzer Source Data Layer, it would be much more efficient to track suspicious Business Transactions in the centralized and homogenous repository that the Source Data Layer represents.
I’ve seen many customers thinking that Bank Analyzer is just a Sub-Ledger (Accounting System); this is a limited understanding of the Integrated Financial and Risk Architecture whose capabilities go far beyond that.
But this post has become too long; we’ll come back to this topic in a future one.
Looking forward to read your opinions.
K. Regards,
Ferran.
Join the SAP Banking community at: http://www.linkedin.com/e/gis/92860
Last years, many scandals have come to light in the Financial Industry; scandals like Libor and Forex manipulations, Tax Evasion practices, etc.
Coinciding with the imposition of fines to some of the biggest and most powerful banks for these compliance violations, we’ve seen a new concept called Conduct Risk, showing up in banking publications, speeches and forums. But what’s exactly the “Conduct Risk”?
We still don't have a regulatory definition of what’s Conduct Risk, but several approximations to the concept have been proposed by regulators in different jurisdictions.
Personally, I like the description proposed by Daniel K. Tarullo, member of the Board of Governors of the Federal Reserve Board and chairman of the Federal Financial Institutions Examination Council. In his speech "Reforming Culture and Behavior in the Financial Services Industry" of October last year. He described it as the risk of malfunctioning controls and operations due to unethical practices.
http://www.federalreserve.gov/newsevents/speech/tarullo20141020a.htm
The Basel Committee on Banking Supervision is already aware of the necessity of building a regulatory framework addressed to Conduct Risk and recently issued the consultative document "Corporate governance principles for banks".
http://www.bis.org/publ/bcbs294.htm
Before that, on 2013, the British Financial Conduct Authority provided a very interesting guide for a company to asses Conduct Risk.
https://www.fca.org.uk/static/fca/documents/fca-risk-outlook-2013.pdf
Banks are responsible of building systems preventing Conduct Risk and unethical behavior. Considering that settlement costs of unethical related activities in recent years are more than 21.000 Million Euros, it looks like an interesting opportunity.
The broad scope of Conduct Risk makes difficult to describe a holistic architecture for managing it; from cases of banks being fined for selling products considered too complex for the risk profile of some of their customers; to banks receiving fines for money laundry or supporting tax evasion.
In my opinion, there’s no better candidate to fulfill the requirement than the Integrated Financial and Risk Architecture of Bank Analyzer. Let me explain you why.
In the same way banks are moving from silo-style to centralized holistic systems for the management of Credit, Market or Liquidity risk, the same rule applies for defining the architecture of a Conduct Risk System.
A holistic management of Conduct Risk requires an integrated vision of economic Facts and the interpretation of those Facts, and this is in the core values of the Integrated Financial and Risk Architecture of Bank Analyzer.
The Source Data Layer is a centralized container of Facts, mirroring economic events happening in the Transactional Banking System. But the Source Data Layer also requires that economic Facts have been homogenized in a single Data Model which makes feasible to track those economic Facts amongst individual processes.
For instance; while is a common issue that banks can have several operational systems with different versions of their account holders ratings, in Bank Analyzer we enjoy a unified vision of the Business Partner and all his attributes.
How can the bank claim that it has run a proper analysis of the Risk Profile of its customers if it’s unable of storing a Single Truth of their Rating?
We don’t have a Conduct Risk Analyzer in Bank Analyzer yet, but we can take advantage of the Open Architecture of the Integrated Financial and Risk Architecture for connecting with other systems fulfilling the specific functions.
For instance, many banks are building Anti-Money-Laundering systems tracking suspicious transactions in their silo-style, poorly integrated network of transactional systems.
As we have all the Business Transactions in the Bank Analyzer Source Data Layer, it would be much more efficient to track suspicious Business Transactions in the centralized and homogenous repository that the Source Data Layer represents.
I’ve seen many customers thinking that Bank Analyzer is just a Sub-Ledger (Accounting System); this is a limited understanding of the Integrated Financial and Risk Architecture whose capabilities go far beyond that.
But this post has become too long; we’ll come back to this topic in a future one.
Looking forward to read your opinions.
K. Regards,
Ferran.
Join the SAP Banking community at: http://www.linkedin.com/e/gis/92860
