Operational Risk for Asset Managers

Introduction

Bruce Offergelt

Basel Definition

“The risk of loss from inadequate or failed internal processes, people and systems or from external events”

FSA Rules

•Qualitative guidance- Senior Management Arrangements,

Systems and Controls (SYSC)- Integrated Prudential Sourcebook (PRU)

•Quantitative requirement

- prudential capital adequacy requirements to be finalised

Qualitative Policy Timetable

• Feedback on CP142 issued March 2003

• Near-Final Handbook Text later 2003

• Implementation 2004 (12 months later)

Capital Adequacy Framework

Risk Based Income used as proxy for Operational Risk Capital Requirement =

Income x Risk Calibration Factor 3 approaches

Basic Indicator Standardised Advanced Management Approach (AMA)

Quantitative Timetable

• Basel CP3 May 2003• EU CAD3 June 2003• FSA CP on Implementation July 2003• Accord Oct 2003• Draft PSB Text Mid 2004• Implementation End 2006

Issues

• Criteria

• Calibration Factors

• Future role of EBR

• Incentivisation

• Partial Use

• Role of Insurance

Next Steps

• Publication of CP3 and EU CAD3

• Data collection for asset managers