DIPO 2010 – Second International Conference on Operational Risk Data for Decision Making, 28th/29th september 2010

Once again, the 2010 conference organised by the DIPO Association in collaboration with ABI Eventi proved to be a valid opportunity for networking and sharing business experience. The event focused on the role of loss data internal and external to the bank, needed to create awareness and investment in mitigating operational risk, which represents, on average, the second largest risk in terms of capital allocation for Italian banks.

The event maintained its international flavour with the attendance of interbank loss data collection consortia (Gold, DSGV Consortium, Dakor, Hunor, ORX and DIPO) and this year also provided the opportunity to hold discussions on operational risk management with representatives from non-financial sectors.

Discussions prompted numerous suggestions as to the possible future development of this area. To facilitate the passage from the measurement of capital against operational risk to its proactive and preventive management, further exploration of causal event analysis was proposed as well as the more direct involvement of Business Units in the various stages of the Operational Risk Management process. In this regard, it was emphasised how Operational Risk Management (ORM) reporting must satisfy not only the requirements of top management but also those of the operating and business units, who play an important role in mitigation.

With regard to the consortia, as the initial objective to improve the historic series of quantitative loss data has now been achieved, the same are now concentrating more on the qualitative flows that can contribute to scenario building. Furthermore, all parties appear to agree on organising regular workshops also at inter-consortium level to periodically identify the potential threats to intermediaries in a specific time period.
Lastly, the representatives of several consortia proposed an exchange of data at aggregate level.

A fair part of the conference was dedicated to updates from the perspective of the Supervisory Authorities, represented respectively by Mitsutoschi Adachi as Chairman of the Basel Committee Working Group SIGOR (BCBS), and by Marco Moscadelli in the dual role as representative of the Bank of Italy and Chair of the CEBS Group on Operational Risk.

Both underlined the consolidated experience of the consortia that are developing also as work platforms for activities not strictly linked to the collection of events for loss profile modelling. They are exploring the exchange of plausible but extreme scenarios and the implementation of guidelines for the performance of operational stress tests.

In recent years we have witnessed significant development in operational risk management also by banks that use the Basic and Standard method to calculate capital requirements. In order to take these changes into account, SIGOR is working on an updated version of the document entitled “Sound Practices for the Management and Supervision of Operational Risk” published in 2003 by the Basel Committee. Now attention has turned to specific topics such as operational risk in outsourcing and the definition of Operational Risk Appetite.

At European level, the representative of the Bank of Italy illustrated efforts being made by the CEBS and several proposals that are under discussion, such as for example, more binding indications as regards the reference date on which to focus the calculation data set, given that, according to the supervisory authorities, the date of occurrence and the settlement date are not appropriate.

The speeches made by representatives of other sectors (Insurance, Air Traffic, Health and Infrastructure) were much appreciated. In a dedicated session, the same illustrated both the aspects they had in common with the banking industry and those that they did not. With regard to the latter, for example, in some industries, the “advance” definition of an operational event is in itself an infringement of security measures. Of the aspects that they have in common are the investment in internal and external data and its modelling, the importance of scenarios and the central role of human resources in mitigation.

A number of academics and researchers presented the results of analyses conducted separately on data of the DIPO and ORX consortia on which they had been authorised to work, which aroused considerable interest. Bank representatives made their contribution by illustrating innovative approaches to the use of external data to quantify operational risk (IntesaSanpaolo, BNP Paribas-BNL), on the potential of an operational risk-based analysis of investment services conducted in synergy between the specific Business Unit and the ORM (Banca Monte dei Paschi) and on the use of quantitative data to build forward-looking scenarios as a real support to management decision-making (UBI Banca and Poste Italiane).

A new, much appreciated feature this year was the organisation of the first DIPO Award entitled “Decisions where ORM made the difference”, which saw the participation of ORM teams from banks and other financial institutions for whom in the three year period 2008-2010, ORM successfully influenced an important corporate decision. The three finalists (Banca Etruria, Erste Bank Hungary and Norddeutsche Landesbank) presented their cases in a special session of the conference.

The first edition of the Award was won by the Norddeutsche Landesbank team.

For latest updates and further information visit the following website:
http://www.abieventi.it/eventi/1117/dipo-2010/

Participants can log in to the abieventi website and have complete access to all documents, non participants will have only a limited access.

DIPO - ITALIAN DATABASE OF OPERATIONAL LOSSES - www.dipo-operationalrisk.it - dipo@abi.it