Operational Risk Management: A Complete Guide to a Successful Operational Risk Framework

Praise for Operational Risk and Regulation "Boards, regulators, and shareholders have heightened their expectations for effective enterprise–level operational risk management. This comprehensive and practical guide will help operational risk managers at all levels develop their tools and frameworks to meet these expectations." —BEN GOLUB, Chief Risk Officer, BlackRock "This high–quality text will provide a solid foundation to any student of operational risk. Once you′ve read this book, you′ll find it will serve as an excellent reference whether you′re new to the subject or an established operational risk expert." —BILL POPP, Operational Risk Expert "Philippa has leveraged her vast experience in implementing operational risk management frameworks at major financial institutions to develop a practical guide for both new and tenured operational risk managers. She uses easy–to–understand examples, highlights the pros and cons of different tactical approaches, and offers a clear road map for success. This guide should be part of a core training curriculum for all operational risk managers. I will be referencing it for years to come." —SPYRO KARETSOS, Director of Enterprise Risk Management, The Vanguard Group "Philippa did a skillful job at articulating Operational Risk discipline from strategic design to practical implementation. Her deep industry experiences have made this book a must read for understanding Operational Risk Management and related practices." —DAVID YE, Chief Risk Officer, State Street Global Markets

Preface ix Acknowledgments xi Chapter 1 Definition and Drivers of Operational Risk 1 Chapter 2 The Regulatory Push 15 Chapter 3 The Operational Risk Framework 33 Chapter 4 Operational Risk Governance 41 Chapter 5 Culture and Awareness 63 Chapter 6 Policies and Procedures 77 Chapter 7 Internal Loss Data 89 Chapter 8 External Loss Data 121 Chapter 9 Business Environment Internal Control Factors: Key Risk Indicators 141 Chapter 10 Risk and Control Self–Assessments 155 Chapter 11 Scenario Analysis 173 Chapter 12 Capital Modeling 189 Chapter 13 Reporting 219 Chapter 14 Risk Appetite 237 Chapter 15 Reputational Risk and Operational Risk 255 Chapter 16 Operational Risk and Convergence 269 Chapter 17 Best Practices in Related Risk Management Activities 281 Chapter 18 Case Studies 291 Appendix: Answers to Review Questions 309 About the Author 317 About the Website 319 Index 321

PHILIPPA X. GIRLING has nineteen years of experience in the global securities industry, working in the fields of operational risk, training, project management, and organizational change. She currently serves as Business Chief Risk Officer for Capital One Commercial Bank. Over her career, Girling has held several operational risk leadership roles, including heading the global corporate operational risk functions at Morgan Stanley and Nomura. Most recently, she has focused on operational risk training, teaching in the operational risk executive education program at Columbia University, and leading operational risk education sessions for the London Business School, Rutgers University, and Carnegie Mellon. Having established a global reputation as an operational risk expert, Girling was selected as one of the "top 50 faces of operational risk" by Operational Risk and Regulation magazine. She holds an English law degree from the University of East Anglia, England, and is a member of the New York State Bar Association. She is a holder of the GARP Financial Risk Manager accreditation and is a doctoral candidate at Rutgers University.