Articles

Response to the Basel Committee SIGOR consultation paper
Recognising the risk-mitigation impact of insurance in operational risk modelling (January 2010)

In Search of Lost Time - Marcel Proust
John Thirlwell's Desert Island Companion (Folio Society 2007)

Why declare UDI?
"Operational Risk" Magazine - (September 2005)

It is truth universally acknowledged that the operational risk function shall be independent. And I've been asking myself - why? What does an operational risk manager do which requires independence? Is this yet another example of how approaches to other types of risk have simply been read across to operational risk without really analysing their relevance?

Constitutional lessons
"Operational Risk" Magazine - (June 2005)

The French 'non' to the European constitution (this is being written before the Dutch go the polls) made me wonder whether there were lessons for us in relation to Basel and the proposed European Directive. Among the guiding principles on all sides of the discussion has been the need to act together - on a playing field which we've all rolled flat and at the same time. Fine, but then other forces come in to play - just as the French electorate has showed.

Response to CP05/3, Strengthening Capital Standards (QQ 134-145, Operational Risk)
Response to FSA CP05/3 - (April 2005)

Deserts of Vast Eternity
"Operational Risk" Magazine - (March 2005)

Harold Macmillan, UK Prime Minister a lifetime and another world ago, was once asked by a young journalist after a long dinner what can most easily steer a government off course. "Events, dear boy. Events", he famously replied. I've often remembered that quote when thinking about operational risk. It sums up its sheer unpredictability. And of course, whether you're a Prime Minister or a CEO, it's your ability to cope with events or, to be more precise, the effects of those events, which will allow your Government or your firm to succeed.

Trojan Horse rules
"Operational Risk" Magazine - (December 2004)

Once upon a time it all seemed so reasonable. The BIS Sound Practices paper was a model of excellent practical guidance. Here in the UK, the draft text of the Prudential Source Book, especially the section on high-level operational risk systems and controls (known mysteriously as SYSC3A), was essentially guidance. It recognised that operational risk was a new risk, not wholly understood, either as to its extent, or as to the essentials which would enable it to be both managed and assessed with any degree of certainty.

The Credit Rating Age (Part II) - The Call for Control
RBC Capital Markets Open Forum Notes - (16 December 2004)

From humble origins the credit rating agencies have evolved as global power brokers and de-facto intermediaries in debt and derivative markets.

• A key element of reform would be the removal of the regulatory restrictions which act as barriers to entry for new or smaller agencies, in particular the current system of NRSRO recognition in the USA.
• To widen the gene pool of agencies, the key criterion for any regulatory eligibility test should be one of "market recognition", whether that market is defined by geography, industry sector or product.
• Whilst it would be preferable for issuer fees to be prohibited, at the very least income sources, including those relating to ratings on securitised products, should be made transparent to the ratings’ users.
• Transparency should extend to identifying whether a rating has been solicited and the nature of any rating triggers within instruments which are rated.
• The conflict of interest deriving from the provision of ancillary services must also be removed by their being unbundled.
• Regulators must learn to curb what has become their habitual use of ratings effectively as a proxy for prudential standards in the debt and securities markets.

Into the unknown
"Operational Risk" Magazine - (September 2004)

A few weeks ago, I was looking out of my window at (by the standards of North West London suburbia) an astonishing monsoon thunderstorm which had lasted dramatically for a couple of hours or so, when a posse of police cars, some marked, some unmarked, screamed up the road and stopped at the house opposite.

Source for the goose?
"Operational Risk" Magazine - (June 2004)

Regulators used to give the impression of approaching outsourcing as if armed with a clove of garlic and a stake in case they had the good luck to meet it at a cross-roads. It represents an abdication of responsibility, they cried ("Oh no it doesn't", we cried back), or a way of running the firm on the cheap or, at best, an abdication of control and was therefore, in the words of 1066 and All That, "a Bad Thing".

Credit Rating Agencies - The New Emperors and Their Clothes
RBC Capital Markets Open Forum Notes (30 April 2004)

• From humble origins as suppliers of information and arm's-length opinions, the major credit rating agencies have developed into powerful global institutions, whose positions are virtually unassailable by would-be new players and deeply entrenched in the workings of today's financial markets. This note maps the rating agencies' remarkable evolution and points to a number of critical and potentially problematic implications.
• The transformation of the agencies' role would not have been possible without the endorsement of regulators, which in essence have awarded the agencies effective control over the access to and the costs of funds in bond markets and beyond.
• Unsolicited and unpaid ratings, once the industry's mainstay in its early days, have turned into an effective means - intentional or not - to drive reluctant issuers into paid rating relationships and away from potential competitors.
• The agencies' dominant position has also been supported by the complicity of the markets, which have largely outsourced responsibility for the analysis that they should be undertaking themselves.

Accord sans frontières
"Operational Risk" Magazine - (March 2004)
Arguing the technicalities of Basel has been a long sideshow to the real issue - how it is going to be implemented. Or more specifically, how the Accord is going to be implemented consistently across national frontiers.

Is Assurance Assured ?
"Operational Risk" Magazine - (November 2003)
As if there weren't enough issues surrounding op risk, I'm not sure the insurance question is close to being answered. At first, Basel put insurance in square brackets within the AMA, but at least it gave it a run. Then the EU upped the ante by offering insurance for all Approaches - Basic, Standardised and Advanced.

Response to the European Commission's Third Consultation Paper on Capital Requirements For Banks and Investment Firms
(October 2003)

Results of Survey by The Operational Risk Research Forum
Insurance and Operational Risk - (September 2003)

Rumbles in the ratings jungle
"Operational Risk" Magazine - (September 2003)
In the ratings jungle, things are astir. Earlier this year, Moody’s published a paper detailing a specific approach to assessing operational risk. Fitch will shortly be devoting a separate section of its rating reports to OR and S&P are developing further metrics by which to assess OR in financial firms. Add to that the acquisition by Fitch Risk Management (not of course to be confused with the Ratings combo) of OpVantage and the First database, and it’s obvious that wagons are rolling. But in what direction?

Response to the Basel Committee on Banking Supervision Consultation Paper (CP3) April 2003
(July 2003)

Why be standardised?
"Operational Risk" Magazine - (June 2003)
It seems such a short time ago that we were building a new capital Accord which would incentivise banks to improve their risk management and encourage them to move along the spectrum of the new Accord’s three stages. How rapidly things can change.

See also the 'Publications' section