In response to regulatory and shareholder demands, financial institutions around the world are investing heavily in developing operational risk frameworks. This is driven by the forthcoming Basel II (the New Captital Accord for Banking Supervision), which will come into force at the end of 2006. Basel II will require banks to allocate capital for operational risk exposures.
Our Financial Institutions team has been actively involved in helping banking regulators and the banking industry formulate these new regulations from an early stage. It was as a direct result of our input that insurance achieved recognition as a capital mitigant for operational risk; meaning that banks can use insurance as a form of capital. Traditional insurance products such as professional indemnity, bankers blanket bond, property and general liability all provide cover against operational risk.
As part of our work on operational risk, we have developed
OpBase, a unique tool containing the largest single source of accurate, scaleable, low frequency (yet high severity) loss data for financial institutions in the world. OpBase enables financial institutions to measure and assess their operational risks more accurately than ever before, and develop an overall risk management framework rather than just focusing on insurance solutions.
The Financial Institutions team has developed a five step process for banks:
- Identification and mapping
- Quantification
- Risk profiling
- Risk Solutions
- Monitoring and updating
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