Course Overview

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Registration and coffee will be at 07.30 on Day One. Each day will commence at 08.00 and conclude at 14.30. There will be two refreshment breaks at approximately 10:30 and 12:30 and lunch will be served at the end of each day’s sessions.

The course offers a modern approach to defi ning structural units of a fi nancial organisation that mainly segregates into back, middle and front offi ce functions. The course presents best practice for managing the back and middle offi ce operations and their relationships with the front offi ce and other operations units, such as IT department or internal audit. It will also cover operational risk and operations management procedures from the perspectives of the trading, clearing, settlement, custodial, asset serving, treasury, funds transfer, risk management and control functions. The major services provided by the back and middle offi ces, in addition to the front offi ce are detailed; problematic areas are highlighted and procedures outlined to minimise error and disruptions in order to facilitate the smooth processing and business continuity. Additionally following operational risks and operations management areas are examined:

• Operational events, key risk factors, indicators, drivers and escalation triggers
• Comparison of the back, middle and front offi ce operations
• Operational risk assessment, identifi cation and measurement strategies
• Fraud and anti-money laundering (AML) detection and prevention initiatives
• Financial services and operations business process outsourcing (BPO) risks
• Comparisons between credit, market and operational risks
• Operational risk from an enterprise-wide risk management (ERM) perspective
• Best practice for quality management, quality control, change management and process reengineering for back office operations and fi nancial services
• Crisis management, business continuity management and contingency planning
• Operational regulatory risk measurement for Basel II and beyond
  
  
  

Day One

• Operational Risk Categories, Factors, Issues And Sources
  
  
  • Operational risk spectrum – defining operational risks and exposures
  • Recent market developments leading to increased exposures in operational risk
  • Operational loss causes, factors, events, effects and consequences
  • Decomposing operational risk – expected, unexpected and extreme losses
  • Unexpected operational losses due to people, processes and systems risks
    Excel Exercise – Generating random occurring operational events
  
  
• Organisational Structures Of Financial Institutions – Defining The Back, Middle And Front Offices
  
  
  • Operations and operational risk policies and organisation
  • General structure of back, middle and front offices and other operations departments
  • Overview and comparison of the functions of the back, middle and front offices\
  • Activities and information requirements of back, middle and front offices
  • Effects of the operations structure on operations and operational risks
  
  


• Organisational Structures Of Financial Institutions – Defining The Back, Middle And Front Offices
  
  
  • Operations and operational risk policies and organisation
  • General structure of back, middle and front offices and other operations departments\
  • Overview and comparison of the functions of the back, middle and front offices
  • Activities and information requirements of back, middle and front offices
  • Effects of the operations structure on operations and operational risks
  
  
  


• Operational Event And Loss Databases
  
  
  • Definitions and information sources for operational events, losses and indicators
  • Elements and benefits to an operational event collection policy
  • Managing, controlling and monitoring operational event databases - roles and responsibilities
  • Setting capture thresholds for operational loss event collection
  
  
  


• Comparing Credit, Market And Operational Risks
  
  
  • Assessment and management differences for credit, market and operational risks
  • Loss distribution definitions and assumptions for market, credit and operational risks
  • Defining Value-at-Risk (VaR) forecast for market, credit and operational risks
  • Comparing data availability for credit, market and operational risk modelling
    Exhibit – Recent credit and market losses and associated operational failures
    Exhibit – Large losses attributed to rogue traders and the related control failures
  
  
  

Day Two

• Managing The Trading Book
  
  
  • Anatomy of a trade – introduction to trade processing
  • Trade order room functions – trade execution, capture, reconciliation and recording
  • Basic order information, types and processing
  • Purchase and Sales (P & S) department – trade confirmation, recording and booking
  • Stock record accounting and cashiering – receiving, delivering and vaulting of securities
  • Margin accounts, margin account maintenance, margin calls and close outs
  • Collateral management, margining and the position risk reduction
  • Daily cash reports, dual-entry bookkeeping and profit and loss statements
  • Responsibilities of the securities and derivatives trading operations functions
  • Comparing over-the-counter and exchange-traded markets
    Excel – Calculating margins using the SPAN margining systems
    


• Clearing, Settlement, Custodial And Asset Servicing Processes
  
  
  • Trade settlement process and electronic trading platforms
  • Factors affecting and functions of settlement systems – conventions and issues
  • Settlement processes and controls and the consequences of settlement failure
  • Trade clearing processes – services offered by some clearing organisations
  • Comparing clearing procedures for securities and derivatives
  • Sample checklist for clearing and settling OTC derivatives transactions
  • Custody, custodians, custodial services and corporate events
    - Categories and applications of corporate actions and asset servicing
    - Corporate event processes and processing corporate actions
    - Delegates involved in the processing and managing of corporate
    actions
    - Reconciliation and custodial reporting requirements
    


• Treasury And Cash Management Functions
  
  
  • Treasury risk spectrum and functions of the treasury unit
  • Payment systems and the treasury function
  • Cash management, cash aggregation, receipts and disbursements
  • Forecasting domestic and foreign cashflows and collection activities
  • Liquidity management – cash budgeting and liquidity management tools
  • Short-term cash management and managing cash shortfalls
  • Interest rate exposure management, asset-liability management and gap analysis
  • Credit risk management – counterparty credit quality assessment, credit risk mitigation and control and collateral, limit and netting arrangements
  • Foreign exchange settlement, internal cash management and currency netting
    - Foreign exchange management and translation, transaction, economic and operational exposures and risks
  • Treasury risk management – best practice for the treasury group
    - Treasury risk measurement – sensitivity analysis, scenario analysis and stress testing
    - Treasury information technologies and systems
  • Hedging using interest rate, currency and credit derivatives and structured products

Day Three

• Asset/Liability Management, Funds Transfer Pricing Systems And Economic Transfer Prices
  
  
  • Overview of the Asset/Liability Management (ALM) desk
    - Overview and components of ALM function
    - ALM interest rate risk measurement techniques
  • Funds Transfer Pricing (FTP) systems
    - Internal use of funds, funds transfer pricing systems and the cost of resources
    - Objectives and limitations of traditional funds transfer pricing
  • Guidelines for setting Economic Transfer Prices (ETPs)
    - Economic transfer pricing, arbitrage opportunities and the maturity spread
    - Pricing schemes and economic transfer prices for lending activities
    - Transfer prices and cost of funds for lending activities
  • Economic transfer prices, maturity spreads and yield curve changes
  • Matched funds transfer pricing and the allocation of capital
    Exhibit – Economic transfer prices and Funds Transfer Pricing (FTP) systems
    


• Best Practice For Fraud Detection, Identification And Prevention
  
  
  • Red flags fraud indicators: recognising fraud types, root causes and symptoms
  • Fraud triangle – motivation, opportunity and rationalisation
  • Best practice for fraud detection, management and prevention
  • Ethical issues and providing whistleblower mechanisms
  • Fraud monitoring and control – investigations versus audits
    Exhibit – Infamous criminal prosecutions of financial fraud


• Procedures For Detecting And Preventing Money Laundering
  
  
  • Three stages of money laundering – placement, layering and integration
  • Identifying suspicious transactions at financial institutions
  • Monitoring investments, lending activities and electronic funds transfer
  • Anti-money laundering initiatives: detection and prevention procedures
  • Money laundering incidents procedures and reporting


• Financial Services Business Process Outsourcing (BPO)
  
  
  • Outsourcing financial services operations – a summary perspective
  • Identifying, selecting and managing costs and opportunities of BPO
  • Key outsourcing risks from the financial services perspective\
  • BPO risk control and mitigation strategies and regulatory
    developments
  • Managing BPO relationships – infrastructure considerations and continuing challenges

Day Four

• Operational Risk Assessment, Identification And Measurement
  
  
  • Operational risk assessment, identification and measurement – defining and identifying key risk factors, indicators, drivers and escalation triggers
  • Operational risk profiling and factor selection for operational risk identification
  • Qualitative operational assessment techniques including risk maps, risk scorecards, workflow charts and tracking charts
  • Measuring and modelling operational loss severities, event frequencies and event durations
  • Operational risk loss event classification – risk sources and related risk indicators
    
  
  
• Operational Value-at-Risk (OPVaR) Forecasting, Backtesting, Stress Testing And Scenario Analysis
  
  
  • Compound risk models for loss severities, loss frequencies and loss event durations\
  • Correlation mappings between operations and operational risks
  • Defining a OPVaR forecast using a historical simulation VaR model
  • Stress testing and scenario analysis for forecasting operational risk measures
  • Backtesting of operational risk models
    Exhibit – OPVaR forecasting for various frequency and severity distributions
    Excel Example – OPVaR forecasting using historical simulation VaR and different categories of random occurring Monte Carlo loss events
    Excel Example – Implementing operational risk back tests


• Operations And Operational Risk Control And Monitoring Functions
  
  
  • Back and middle office monitoring, independent risk reporting and setting limits
  • Operational risk audits, reviews and risk event reports
  • Long and short-term approaches for controlling perations risk
    - Netting arrangements, novation and the reduction of operations risk
    - Confirmation matching and netting of transactions
  • Operations controls procedures and limit setting


• Miscellaneous Operations And Operational Risk Management Functions
  
  
  • Enterprise-wide risk management from an operations perspective
    - Benefits and limitations of enterprise-wide risk management
    - Comparing traditional and enterprise risk management functions
    - Implementing an enterprise-wide operational risk management
    policy
  • Crisis management, business continuity management and
    contingency planning
  • Workflow analysis and assessment of operations performance
  • Financial services quality control, change management and process reengineering
    - Total Quality Management (TQM)
    - International standards for quality management systems (ISO 9001)
    - Using Six Sigma process control techniques


• Modelling Operational Regulatory Capital Charges Under Basel II
  
  
  • Basel II and Internal Capital Adequacy Assessment Process (ICAAP)
  • Basel II and three complementary pillars of operational risk
    - Pillar 1 – minimum requirements for capital charges
    - Pillar 2 – supervisory review process
    - Pillar 3 – public disclosure requirements
  • Basel II risk measurement and op-risk regulatory capital measurement approaches
    - Basic indicator approach
    - Standardised approach
    - Advanced Measurement Approaches (AMAs)
  • Factors for selecting an operational regulatory risk measurement approaches
  • • Backtesting operational risk models from a regulatory perspective