Advanced operations management 2e david loader

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ADVANCED OPERATIONS MANAGEMENT Second Edition David Loader ADVANCED OPERATIONS MANAGEMENT Second Edition The Securities & Investment Institute Mission Statement: To set standards of professional excellence and integrity for the investment and securities industry, providing qualifications and promoting the highest level of competence to our members, other individuals and firms The Securities and Investment Institute is the UK’s leading professional and membership body for practitioners in the securities and investment industry, with more than 16,000 members with an increasing number working outside the UK It is also the major examining body for the industry, with a full range of qualifications aimed at people entering and working in it More than 30,000 examinations are taken annually in more than 30 countries You can contact us through our website Our membership believes that keeping up to date is central to professional development We are delighted to endorse the Wiley/SII publishing partnership and recommend this series of books to our members and all those who work in the industry Ruth Martin Managing Director ADVANCED OPERATIONS MANAGEMENT Second Edition David Loader Copyright # 2006 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (þ44) 1243 779777 Email (for orders and customer service enquiries): Visit our Home Page on All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to, or faxed to (þ44) 1243 770620 Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, trademarks or registered trademarks of their respective owners The Publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the Publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Other Wiley Editorial Offices John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 42 McDougall Street, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 22 Worcester Road, Etobicoke, Ontario, Canada M9W 1L1 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN-13 978-0-470-02654-0 (PB) ISBN-10 0-470-02654-5 (PB) Project management by Originator, Gt Yarmouth, Norfolk (typeset in 12/16pt Trump Mediaeval) Printed and bound in Great Britain by T.J International Ltd, Padstow, Cornwall This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production To my wife and my colleagues who gave huge support to me in preparing this book and to all the operations managers past, current and future without whom there would be no financial services industry CONTENTS Preface About the author THE CHALLENGE xvii xix The profile of operations Operations is a business The challenge of change The challenge of management style The challenge of global markets The challenge of personal goals 10 The challenge of dealing with events 10 THE MANAGEMENT PHILOSOPHY Reporting lines THE MANAGEMENT OF RISK 13 19 23 Market risk 26 Characteristics of the products used 27 viii CONTENTS Management risk 27 Inadequate procedures and controls 27 Information or reporting risk 28 Market or principal risk 28 Credit or counterparty risk 30 Operational risk 31 Means of reducing settlement risk 33 Personnel/HR risk 35 Liquidity risk 36 Systemic risk 37 Financial or treasury risk 38 Technology risk 39 Systems failures 39 Technology awareness 40 Legal risk 40 Regulatory risk 41 Reputation risk 42 Other risks 43 Malicious risk 43 Country risk 43 Understanding risk 45 318 controls (cont.) management risk 27À8, 34, 38 risk management 25À8, 34, 38, 45À56, 146À7, 192À4, 207À9, 230À1 strategic controls 46À50, 221 technology 132À42 conversion, data 140À2 convertible bonds 27 corporate governance 217À24, 241 corporations, CDD 172À7 correspondent banks, nostro accounts 87 costs 4À5, 9, 72À89, 124À5, 128À31, 134À5, 141À2, 150À2, 157À60, 208À9, 212À24 client management 157À60 documentation 150À2 funding 72À5, 79À80 management information 208À9 money 72À5 outsourcing 212À24 technology 128À31, 134À5, 141À2 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime 269 counterparty risk 30À1, 34, 199À200, 222À4 see also credit risk country risk, concepts 26, 43À5, 222À4 coupon see interest payments CPD see continuous personnel development credit derivatives 235À6 credit ratings 30À1 credit risk 24, 30À1, 32, 51, 55, 88À9 see also counterparty risk CREST 33, 34, 226À9 critical drivers, management philosophy 14À21 CSD see Central Securities Depository cultural issues blame cultures 159À60 client management 155À95 INDEX customer-oriented cultures 158À95 decision making 14À21, 51, 55À6 documentation 144, 148À9 risk management 51, 55À6 currency futures/options 84 currency risk 29, 32, 44À5 see also foreign exchange currency swaps 84 custodians 3, 4, 9, 33À4, 58À60, 66, 69, 74À5, 79À80, 129À30, 191À4, 204, 238À9 customer acceptance, KYC risk management 164À77, 287À95 customer due diligence (CDD) 164À77, 194À5, 218À24, 235, 250À7, 284À95 customer identification, KYC risk management 164À77, 287À95 customer record-keeping FATF Recommendations 250À7 KYC risk management 164À77, 289À5 operations function 3À4, 124, 167À77 customer-oriented cultures 158À95 data protection laws 130À1, 293À4 databases 130À1, 174À7, 293À4 dealers 5, 21, 78À80, 141À3 P&L 78À80 technological changes 141À2 dealers in precious metals/stones 257, 259À60 dealing with people 107À9, 115À17, 122À5 decision making cultural issues 14À21, 51, 55À6 empowerment considerations 8, 18, 51, 109À10 information 19À21, 28, 44À5, 50À6, 112À13, 123À5, 130, 142, 147À8, 184, 197À209 matrices 15À16 organisation size 14À21 reporting lines 19À21, 28, 46À8, 50À6, 200À1 INDEX declaration systems at borders, FATF Recommendations 277À8 delegation considerations 8, 18À21 delivery of collateral, stock lending 64À6 delivery versus delivery (DVD) 34 delivery versus payment (DVP) 34 derivatives 24, 29, 36À7, 41, 62, 68À70, 72, 84, 104À6, 111À12, 141À2, 213, 227, 230, 235À6 agreements 41 concepts 24, 36À7, 62, 68À70, 72, 111À12, 213, 227, 230, 235À6 critique 62 systems 111À12, 230 uses 24, 36À7, 62, 68À70, 72, 84 volatility 29 Deutsche Terminbo¨rse 100 Deutsche Bo¨rse 227 difficult people, management 115À17 disaster recovery 11À12, 25, 218À19, 240À1 distribution factors documentation 152À4 management information 201À3 dividends 2, 72 documentation ad hoc production 144À5, 202 audience 148 audits 146À7 benefits 145À54 central online repositories 153À4 compliance 146À54 concepts 41, 143À54, 250À7 controls 146À7, 149, 152À4 costs 150À2 cultural issues 144, 148À9 distribution factors 152À4 FATF Recommendations 250À7 format considerations 148 good documentation 145À54 guidelines 148À52 historical perspective 144À5 ISDA documentation 41, 235À6 knowledge base 143À54 maintenance issues 149, 152À4 outsourcing 150À2 319 reviews 153 shortcomings 144À5 sourcing considerations 150À2 structural issues 149 user requirements 148À52, 204À7 dotcoms 100, 227 dual purposes, information 198À9 due diligence 164À77, 194À5, 218À24, 235, 250À7, 284À95 DVD see delivery versus delivery DVP see delivery versus payment EAG 283 economies of scale, insourcing 223À4 Eight Special Recommendations on Terrorist Financing, FATF 245, 246 electronic dealing systems 141À2, 226À7 see also technology emails 106, 128, 169À77 emerging markets 29, 44À5 see also country risk employees see staff empowerment considerations 8, 18, 51, 109À10 Enron 1, 42, 100 equity position risk see price risk errors 186À7, 191À2, 199À200, 203, 205À9 ESAAMLG 283 escalation procedures, client management 186À7 EU see European Union euro Eurobonds 236 Euroclear 226À9 Euronext 34, 226À7, 230 European Commission 283 European Union (EU) 8, 213 events 10À12, 25À6 see also risk exchange-traded transactions 27, 68À70 exchanges, concepts 8, 11À12, 173À7, 204, 226, 229À30 executive committees 46À8 320 exit strategy risk 221À4 exotic products, concepts 27 expertise, capture 145À54 external benchmarks 123À5, 184À6, 203, 205À7, 237 external clients 156À7, 163À4 see also client external controls, risk management 25À6, 45À56 external vendors, IT systems 129À30 extraditions, FATF Recommendations 269À73 FATF see Financial Action Task Force feedback 121, 185À6 fees 63À6, 200À1 Financial Action Task Force (FATF) 178, 243À78 competent authorities 258, 263À78 compliance 258À60, 262À78 confiscations and seizures 269, 271À3, 274À5 customer due diligence 250À7 customer record-keeping 250À7 declaration systems at borders 277À8 Eight Special Recommendations on Terrorist Financing 245, 246 extraditions 269À73 financial institutions 245, 250À78 Forty Recommendations 243À78, 280À1 functions 244À5 GAFI 279À82 historical background 244À6 insufficient compliance 262 international co-operation 269À73, 275À6 legal persons 268À9, 276 legal systems 245À78 membership 244 money laundering 178, 244À78, 280À2 mutual legal assistance 269À73 INDEX Nine Special Recommendations 273À8, 280À1 non-profit organisations 277 Recommendations 243À78, 280À3 regional bodies 279À83 reporting of suspicious transactions 258À60, 265, 275 terrorist financing 178, 244À78, 280À3 unusual transactions 256À7, 261, 278 wire transfers 276 financial institutions 164À77, 245, 250À78 financial intelligence unit (FIU) 258, 265À78 financial risk 32, 38À9 see also operational risk Financial Services Authority (FSA) 45, 48 FIU see financial intelligence unit floors 235À6 flow diagrams 148 football analogy, management style foreign exchange (FX) 29, 32, 44À5, 72À4, 84, 213, 227À31 see also currency risk foreign-exchange risk see currency risk format considerations, documentation 148 Forty Recommendations, FATF 243À78, 280À1 forward rate agreements 84 forwards 84 foundations, CDD 176 Francis, Fred 212À13 fraud 42, 106, 166À77, 178, 201, 244À78, 280À2, 284 friendly societies, CDD 175 front office, client management 188 frozen assets, FATF Recommendations 274À5 FSA see Financial Services Authority INDEX fund administrators 3, 4À5, 9, 58, 212À24 fund managers 3, 8, 58, 220 funding costs 72À5, 79À80 sources 72À89 future cash flows 30 future prospects, technology 141À2 futures 60À1, 84, 94, 193À4 The Futures and Options Association 34, 111À12 FX see foreign exchange G30/ISSA recommendations 63, 100À1, 232, 239À41 GAFI, FATF 279À82 GAFISUD 281 Germany 226À7 global investment banks 3, 14À21 global markets, challenges 5À6, 8À10, 97, 226À41 globalisation 97, 237À9 glossary 299À311 Griffin 45 groups, KYC risk management 287À8, 293À4, 297 GSCS benchmarks 237 hackers 43 Hammersmith Council 40À1, 45 hedge funds 9, 24, 59, 61À2, 223À4, 235 hedging 9, 24, 59, 61À2, 84, 223À4, 235 Herstatt risk 230À1 HKEx 229À30 home country supervisors, KYC risk management 292À3 Hong Kong 229À30 human resource (HR) risk 31À2, 35, 43, 54, 89, 120À1 see also operational risk; staff identification needs see customer identification IMF see International Monetary Fund impact assessments 11À12, 25À6 321 implementation, projects 134À42 India 224 industry issues client management 181, 188À9 developments 225À41 organisations 232À41 information see also knowledge; reporting lines accuracy quality 199À209 concepts 198À209 decision making 19À21, 28, 44À5, 50À6, 112À13, 123À5, 130, 142, 147À8, 184, 197À209 dual purposes 198À9 fundamental data 199À200 KYC risk management 164À77, 289À95 management information 112À13, 123, 130, 184À6, 197À209, 239 market falls 61À2 overload problems 199À200, 204 paths 200À9 qualities 199À209, 239 relevance quality 199À209 reporting lines 19À21, 28, 46À8, 50À6, 142, 200À1 risk management 50À6, 164À77, 289À95 sources 200À1, 203À4 timeliness quality 202À9 up-to-date quality 199À209 validation of request 201À4 information technology (IT) 96À7, 110, 112À13, 127À42, 153 see also technology information/reporting risk, concepts 28 insourcing 2, 4, 150À2, 212, 220, 223À4 insurance policies 2, 24À5, 50À6 Inter-American Convention against Terrorism 2002 269 interest payments, bonds 72, 82À3 interest rates 29À30, 40À1, 45, 72À5, 80À3, 84 interest-rate risk 29À30 322 interest-rate swaps 40À1, 45, 84 intermediaries 176À7, 261 internal clients 156À7, 163À4 see also client internal controls, risk management 25À6, 34, 38, 45À56 international co-operation, FATF Recommendations 269À73, 275À6 International Monetary Fund (IMF) 246 International Securities Markets Association (ISMA) 236 International Securities Services Association (ISSA) 5, 59, 63, 188À9, 232 International Swaps and Derivatives Association (ISDA) 41, 70, 235À6 Internet 42, 100, 226À7 intranets 153À4 investment banks 3, 14À21 investments market value 29 performance issues 8À9, 58À9 types Iraq 62À3 Ireland 223, 228 irrevocable payments 88 ISDA see International Swaps and Derivatives Association ISMA see International Securities Markets Association ISSA see International Securities Services Association IT see information technology Italy 281 Jiway 227 Kidder Peabody 45 Kipling, Rudyard 91 know your customer (KYC), concepts 164À77, 283À95 knowledge 12, 143À54 see also information KYC see know your customer INDEX large firms, management issues 14À21 large-value funds transfer systems (LVFTS) 87 lawyers 171À3, 257, 259À60 LCH see London Clearing House leadership skills 18 Leeson, Nick 1, 21, 25, 238 legal persons FATF Recommendations 268À9, 276 transparency 167À70, 268À9 legal risk 32, 40À1, 54, 186À7, 222À4, 284, 286À95 see also operational risk legal systems see also regulations FATF Recommendations 245À78 KYC risk management 293À5 lending agreements, securities financing 67 liaison programmes, client management 181À2, 187À8 licences, financial institutions 263À5, 276 lien, collateral 68À9 life funds 8À9, 24À5 LIFFE see London International Financial Futures Exchange limited partnerships 177 liquidity 8À9, 29, 31À2, 36À7, 58À60, 73À89 liquidity risk 31À2, 36À7 see also market risk; operational risk listed companies 173À7 Loader, David 12, 127, 130, 155, 195, 197 loan initiation, stock lending 64À6 logistics, projects 134À5 logs client management 186À7 operational performance 114À15 training 103À4, 205À7 London Clearing House (LCH) 34, 226À7 London International Financial Futures Exchange (LIFFE) 99À100 INDEX London Stock Exchange (LSE) 34, 67 long positions 74À80 loss event database 54 losses 5, 54 LSE see London Stock Exchange LTCM 37 LVFTS see large-value funds transfer systems maintenance issues, documentation 149, 152À4 Malaysia 44À5 malicious risk 43 management see also risk management challenges 4À12, 141À2, 226À41 change 5À7, 11À12, 141À2, 199À200, 209, 226À41 client management 155À95 collateral 68À70 concepts 1À12, 14À21, 46À56, 68À70, 91À125, 180À2, 197À209, 227À41 dealing with people 107À9, 115À17, 122À5 difficult people 115À17 emerging markets 29, 44À5 football analogy leadership skills 18 motivation considerations 6À7, 8, 9, 108À9, 116À25, 136À7 motor car analogy organisation size 14À21 outsourcing 217À24 people 107À9, 115À17, 122À5 performance issues 4À5, 114À17, 158À60, 181À95 personalities 21 philosophy 13À21, 46À8, 117 profile 2À3 resource management 91À125, 134À42 respect 118À20, 124À5 responsibilities 8, 18À21, 46À9, 52À5, 94À7, 124À5, 139À42, 147, 160, 180À4, 192À4, 198À9, 217À24, 227À41 skills 10, 12, 15À21, 55À6, 93À8, 323 103À7, 116À17, 128À42, 150À2, 159À60 staff 4À10, 12, 16À21, 93À125 structural issues 14À21, 46À7, 181, 182, 226À41 style 7À8, 18, 107À9, 115À20, 197 systems 110À15, 123À5, 128À42, 203À9 technology 110À15, 123À5, 128À42 management of collateral/benefits, stock lending 64À6 management information (MI) 112À13, 123, 130, 184À6, 197À209, 239 see also information; reporting lines accuracy quality 199À209 compilation 204 concepts 197À209, 239 costs 208À9 distribution 201À3 forms 201À3 fundamental data 199À200 information paths 200À9 need-to-know principle 201À3 overload problems 199À200, 204 production 202À3, 204À7 qualities 199À209, 239 relevance quality 199À209 risks 207À9 timeliness quality 202À9 up-to-date quality 199À209 validation 201À4 management information systems (MISs) 112À13, 123, 130, 184À6, 197À209, 239 management risk, concepts 27À8, 38 Managing Technology in Operations (Loader & Biggs) 130 margin calls 60À1, 68À70, 193À4 margin value, collateral 69À70 ‘marked to market’ positions 30 market falls 61À2 market makers 60À1 324 market risk see also currency ; interest-rate ; price concepts 24, 26À7, 28À30, 36À7, 47À8, 51, 55, 88À9 definition 28 market shares 161À2 market value, investments 29 Mastering Repo Markets (Steiner) 81 matrices, decision making 15À16 meetings, client management 181À2, 187À8, 194À5 Memorandum and Articles of Association 171 mergers 8, 11À12, 226À30 MISs see management information systems mitigation strategy see also insurance risk management 50À6, 240À1 money, costs 72À5 money laundering concepts 42, 106, 166À77, 178, 244À78, 280À3, 284 FATF 178, 244À78, 280À2 money market 79, 83À4, 106 money supply 72 Morgan Grenfell 45 Morgan Stanley 227 mortgages motivation considerations 6À7, 8, 9, 108À9, 116À25, 136À7 motor car analogy, operations management multiple skill sets 15, 16À18 mutuals, CDD 175 Myanmar 281À2 Nauru 281 NCCTs see non-cooperative countries and territories need-to-know principle, management information 201À3 net present value 30 netting of settlements 227, 230À1, 236, 241 INDEX networks, technology 133À42 Neuer Markt 227 NewGroup 228À9 Nigeria 282 Nine Special Recommendations, FATF 273À8, 280À1 non-cooperative countries and territories (NCCTs) 281À2 non-face-to-face opening of accounts 166À7 non-financial businesses, FATF Recommendations 245, 250À78 non-profit organisations, FATF Recommendations 277 nostro accounts 87 objectives 18À19, 94À6 off-balance sheet transactions 290 offsetting 230À1 Offshore Group of Banking Supervisors 165 oil supplies 63 OM 227 one-stop shop concepts 160 open-ended investments 177 open-outcry trading 141À2, 226À7 operational performance see also performance issues resource management 114À17 operational risk see also risk awareness needs 52À3, 199À200 concepts 24À6, 31À43, 49À56, 88À9, 156À7, 199À200, 213À24, 226 decentralised approaches 55 definition 31 scorecards 53À4 treasury 88À9 types 31À43 operations business concepts 3À5, 10, 14À21 complexity 2À3 concepts 2À12 functions 3À5, 14À21, 198À9 technology awareness 40, 110, 128À42 operations management INDEX see also management concepts 1À12, 14À21, 46À56, 58À9, 112À13, 141À2, 180À2, 198À209, 227À41 options 84, 94 organisations industry organisations 232À41 reporting lines 15À21 strategies 49À50 structural issues 14À21, 46À8, 100À3, 181, 182 outsourcing 2, 4À5, 96À7, 129À30, 150À2, 211À24 concepts 150À2, 211À24 confidential information 218À19 costs 212À24 critique 224 definition 214À19 documentation 150À2 management 217À24 reasons 212À24 regulations 214À22 responsibilities 217À24 RFPs 220, 224 risk 213À24 SLAs 41, 184À6, 222À4 staff issues 220À4 technology 129À30, 212À24 uses 215À19 written contracts 218À24 over-the-counter transactions 27, 68À70, 88, 235À6 P&L see profit and loss Palermo Convention see United Nations, Convention against Transnational Organized Crime partnerships, CDD 172À7 ‘payable-through accounts’ 254 payment processes 33À4, 112À13 payment versus payment 231 penalties 38À9, 222À4 pension and endowment policy providers 8À9 pension funds 8À9 People’s Republic of China 283 performance issues 4À5, 98À101, 325 109, 113, 114À22, 140À2, 158À60, 181À95, 199À200, 208À9, 224 benchmarks 123À5, 184À6, 203, 205À9, 237 client management 158À60, 181À95 investments 8À9, 58À9 measurement 98À101, 109, 116À22, 199À200 operations management 4À5, 114À17, 158À60, 181À95 staff appraisals 98À101, 109, 116À25, 206 technical performance 113, 140À2 personal goals, challenges 10À11 personalities client management 191À2 operations managers 21 personnel risk see human resource (HR) risk phased introduction, risk management 52À6 philosophy, management 13À21, 46À8, 117 planning 199À201, 205À7 policies, risk 50À6 political persons, FATF Recommendations 253À6 politics 11À12, 206, 253À6 ‘pooled’ accounts 176À7 post-implementation assessments, projects 141À2 post-settlement environment 74À5 powers, competent authorities 265À78 precious metals/stones 257, 259À60 price risk 29 principal risk see market risk procedural documentation see documentation procedures, risk 27À8, 34, 38, 50À6 processes collateral 68À70 re-engineering exercises 146À7, 228À9 restructuring issues 101À3, 146À7, 228À9 326 processes (cont.) risk management 50À6 stock lending 64À6, 74À80, 239À41 treasury settlements 85À9, 112À13 products characteristics 26À7, 33À4, 155À95 successful products 155 professional intermediaries 176À7, 261 professions, FATF Recommendations 245, 250À78 profit and loss (P&L) 78À80, 85À6, 89 programmers 3, 39À40, 215 projects implementation 134À42 logistics 134À5 phases 140À2 post-implementation assessments 141À2 priorities 138 scope considerations 138À9 slippage 136 stages 132À3 status updates 139À41 technology 132À42 timing considerations 135À6 provident societies, CDD 175 qualities, management information 199À209, 239 quality assurance 203 quality resources 4À5, 17, 35, 92À125, 136À7, 157, 231À2 quality of service 157À95 see also client management quarterly reviews, staff 109 Ratners 42 RBC Global Services 212À13 re-engineering exercises 146À7, 228À9 re-training 101, 134À5, 228À9 real estate agents 257 INDEX recognition skill, motivation considerations 118À20 reconciliations collateral 69À70 operations function 3À4 record-keeping needs FATF Recommendations 250À7 KYC risk management 164À77, 289À95 operations function 3À4, 124, 167À77 recruitment, quality resources 4À5, 6, 17, 98À101, 136À7, 145À8, 231À2 redundancies 9À10, 102À3 references, CDD 174À7 regional bodies, FATF 279À83 regulations 2, 6À12, 24À7, 32, 38À9, 41À2, 48, 106, 112, 146À54, 178À9, 186À7, 203, 213, 231À2, 241, 245À78, 292À3 see also compliance; legal systems change 2, 6, 8, 11À12, 213, 231À2 events 11À12 FATF Recommendations 245À78 KYC risk management 164À77, 292À3 outsourcing 214À22 penalties 38À9 risk management 24À7, 32, 41À2, 48, 241, 292À3 self-regulatory organisations 264À5 regulatory risk 32, 41À2, 104 see also operational risk relationship management 73, 156À95 see also client management establishment 179À95 treasury role 73 relevance quality, information 199À209 remote clearing 237À9 remuneration, staff 108À9 RepoClear 88 report writing 106 reporting lines INDEX see also management information concepts 19À21, 28, 46À8, 50À6, 106, 200À2 importance 20À1, 28, 46À8 organisation size 15À21 reporting risk, concepts 28 reporting of suspicious transactions, FATF Recommendations 258À60, 265, 275 repos see repurchase agreements repurchase agreements (repos) 58, 66, 67À9, 74À5, 79À83, 227 see also securities financing concepts 66, 67À9, 79À80, 81À3, 227 definition 67 example 81À3 treasury department 74À5 reputational risk see also operational risk concepts 1, 32, 42À3, 156À7, 158À60, 194À5, 203, 221À4, 284, 285À95 request for proposals (RFPs) 220, 224 requirements specification, projects 140À2 resistance problems, change resource, definition 96À7 resource management 91À125, 134À42 concepts 92À125, 134À42 contingency planning 98À101, 113, 115, 123À4, 137, 216À19 dealing with people 107À9, 115À17, 122À5 difficult people 115À17 globalisation 97 motivation considerations 108À9, 116À25, 136À7 operational performance 114À17 pressures 92À3 problems 92 projects 134À42 restructuring issues 101À3, 146À7, 228À9 skills 93À8, 103À7, 124À5 staff 93À125 327 staff appraisals 98À101, 109, 116À25, 206 succession planning 103À7, 137 systems management 96À7, 110À15, 123À5 team structure 100À3 technical performance 113 training 93, 97À8, 101, 103À7, 108À9, 123À4, 134À5, 147À8, 159À60, 182, 189, 200À1, 205À7, 231À2 workflow pressures 92À125 working environment 110 respect, management 118À20, 124À5 responsibilities client management 180À95 delegation 8, 18À21 management 8, 18À21, 46À9, 52À5, 94À7, 124À5, 139À42, 147, 160, 180À4, 192À4, 198À9, 217À24, 227À41 outsourcing 217À24 risk management 46À7, 48À9, 52À3, 54À5, 124À5, 192À4, 217À24 restructuring issues, resource management 101À3, 146À7, 228À9 retail banks retention factors, client management 158À60, 162À5, 195 retirement benefit programmes 174 return/recall of securities, stock lending 64À6 returns 9, 58À9 rewards, motivation considerations 117À22 RFPs see request for proposals risk 1À4, 23À56, 88À9, 106, 120À1, 132À5, 146À7, 164À77, 192À4, 207À9, 221À4, 230À1, 284 see also events; individual types of risk management information 207À9 motivation considerations 120À1 outsourcing 213À24 328 risk (cont.) policies 50 positive aspects 24, 26 procedures 27À8, 34, 38, 50À6 process maps 52À4 reduction measures 24À6, 33À4, 45À56, 59, 240À1 sources 3À4, 25À33, 146À7 types 1, 24À43, 88À9, 132À3, 199À200, 221À4, 230À1, 284 understanding 45, 146À7, 164À77 risk management awareness needs 52À3, 146À7, 164À77 centralised/decentralised approaches 55 client management 192À4 concepts 2, 11À12, 15, 21, 23À56, 112À13, 120À1, 124À5, 142, 146À7, 192À4, 200À3, 205À9, 213À24, 230À1, 288À97 controls 25À8, 34, 38, 45À56, 146À7, 192À4, 207À9, 230À1 cultural issues 51, 55À6 departments 52À6 FATF Recommendations 253À6 goals 50À6 impact assessments 11À12, 25À6 implemented controls 54À6 information 50À6, 164À77, 289À95 KYC risk management 164À77, 283À95 management philosophy 21, 46À8 measurement needs 53À6 mitigation strategy 50À6, 240À1 monitoring needs 53À6, 139À40, 192À4, 290À5 objectives 25À6, 46À8, 49À56 outsourcing 213À24 phased introduction 52À6 policies 50 processes 50À6 regulations 24À7, 32, 41À2, 48, 241, 294À5 responsibilities 46À7, 48À9, 52À3, 54À5, 124À5, 192À4, 217À24 role 25À6, 46À8, 49À56 INDEX shareholder value 54 stakeholder needs 51, 241 strategic controls 46À50, 221 treasury 88À9 risk management group (RMG) 46À8 risk-based compliance 48À9 RMG see risk management group sales teams, client management 161À3 scandals 1, 21, 24À5, 36À7, 45, 62, 100, 238 scope considerations, projects 138À9 secondary uses, securities financing 59 secrecy laws 295À6 secured borrowing 81À9, 200À1 see also borrowing securities financing 38À9, 57À70, 74À80 see also collateral; repurchase agreements; stock lending business plans 60À1 concepts 57À70, 79À80 definition 58 G30/ISSA recommendation 63, 100À1, 232, 239À41 lending agreements 67 secondary uses 59 Securities Industry Association (SIA) 234À5 securitisation 58, 70 see also securities financing security policies 113, 115, 130À2 segregated money 42 seizures, FATF Recommendations 269, 271À3, 274À5 self-assessments, risk awareness 52 self-regulatory organisations, FATF Recommendations 264À5 sensitivity analysis 30 September 11th 2001 terrorist attacks 1, 108, 232 service definition, client management 178À9, 184À6 INDEX service level agreements (SLAs) 41, 184À6, 222À4 settlement see also operations conventions 11À12 days 76À80 fails 77À80, 191À2, 200À1 shortened cycles 232À3 settlement risk 31À2, 33À4, 59, 61, 240À1 see also operational risk shareholder value, risk management 54 shares 2, 72, 106, 174 shell banks 260À1 short positions 60À2, 75À80 SIA see Securities Industry Association Singapore 230, 238 skills accounting 128 client management 159À60 documentation considerations 150À2 exercise 95À6 management 10, 12, 15À21, 55À6, 93À8, 103À7, 116À17, 128À42, 150À2, 159À60 measurement needs 94 teams 15, 16À18, 55À6, 93À8, 103À7, 124À5, 159À60 technology 128À42 template 95À6, 105À7 SLAs see service level agreements slippage, projects 136 small firms, management issues 14À21 sourcing considerations 2, 4À5, 96À7, 129À30, 150À2, 211À24 see also insourcing; outsourcing South Africa 280 speculation 61À2, 84 spin, uses 206 spreadsheets 128 staff 3À21, 31À2, 35, 43, 54, 55À6, 89, 93À125, 136À42, 144À54, 220À4, 287À88 see also teams 329 appraisals 98À101, 109, 116À25, 206 attitudes 107À8 dealing with people 107À9, 115À17, 122À5 difficult people 115À17 HR risk 31À2, 35, 43, 54, 89, 120À1 importance 6À7, 12, 31À2, 35, 55À6 loyalties 107À8 malicious risk 43 management 4À10, 12, 16À21, 93À125 motivation considerations 6À7, 8, 9, 108À9, 116À25, 136À7 organisation size 16À18 outsourcing 220À4 quality resources 4À6, 17, 35, 92À125, 136À7, 157, 231À2 quarterly reviews 109 recruitment 4À5, 6, 17, 98À101, 136À7, 145À8, 231À2 redundancies 9À10, 102À3 remuneration 108À9 reporting structure 46À8 resistance to change skills 15, 16À18, 55À6, 93À8, 103À7, 124À5, 150À2, 159À60 succession planning 17, 103À7, 137 technology awareness 40, 128À42 training 3, 17, 55À6, 93, 97À8, 101, 103À7, 108À9, 116À17, 123À4, 134À5, 147À8, 159À60, 182, 189, 200À1, 205À7, 231À2, 287À88 stakeholders, needs 51, 241 Steiner, Rob 81 Stock Exchange of Hong Kong Ltd 229À30 stock lending 58, 59À65, 74À80, 239À41 see also securities financing STP see straight-through processing STR see suspicious transaction report 330 straight-through processing (STP) 61, 86À9, 100À1, 111, 142, 179À80, 226, 233 strategic controls, concepts 46À50, 221 strategies, organisations 49À50 stress testing 30 structural issues good documentation 149 operations management 14À21, 46À7, 181, 182, 226À41 organisations 14À21, 46À8, 100À3, 182 teams 100À3, 159À95 structured products teams subsidiaries 173À7, 262, 285À6, 291À2, 295 succession planning 17, 103À7, 137 Sumitomo 45 supervisors, KYC risk management 294À5 suspicious transaction report (STR) 258À9, 268 swaps 40À1, 45, 84, 193À4, 227, 235À6 swaptions 235À6 SWIFT 11À12, 73, 87À8 Switzerland 281 system-supported services 178À9 systemic risk 37À8, 217À19, 222À4 see also operational risk systems 32, 37À40, 88À9, 96À7, 110À15, 123À5, 128À42, 179À95, 203À9, 217À19 see also technology risk failures 11À12, 25, 39À40, 110À11, 191À2, 240À1 risk 32, 39À40, 88À9, 110À13 types 112À13 T&D see training and development programme T þ settlements 232À3 targets 18À19 tax 26, 63 teams see also staff challenges 10À12, 98À101, 117 INDEX client management 156À95 creation considerations 99 management philosophy 14À21, 46À8, 117 organisation size 14À21 restructuring issues 101À3, 228À9 skills 15, 16À18, 55À6, 93À8, 103À7, 124À5, 159À60 structural issues 100À3, 159À95 successful teams 98À9, 195, 197 succession planning 17, 103À7, 137 technical performance, IT 113 technical products, usage technology see also information technology awareness 40, 110, 128À42 bespoke systems 128À9 central online repositories 153À4 change 2À3, 11À12, 133À42, 153À4, 226À41, 254À6 concepts 2À3, 11À17, 32, 39À40, 88À9, 110, 127À42, 153À4, 180, 212À24, 226À41, 254À6 controls 132À42 costs 128À31, 134À5, 141À2 data protection laws 130À1, 295À6 developments 2À3, 11À12, 15À17, 127À42, 215À19, 226À41, 254À6 emails 106, 128, 169À77 external vendors 129À30 future prospects 141À2 Internet 42, 100, 226À7 loss of key staff 137 management 110À15, 123À5, 128À42 networks 133À42 outsourcing 129À30, 212À24 performance issues 113, 140À2 perspectives 131À2 phases 140À2 post-implementation assessments 141À2 power/danger issues 127, 131 priorities 138 INDEX problems 127, 128, 131À3, 135À6, 138À9 projects 132À42 skills 128À42 systems failures 11À12, 25, 39À40, 110À11, 240À1 timing considerations 135À6 training 128À9, 134À5 user/developer conflicts 131À3, 136, 137À9 technology risk 32, 39À40, 88À9, 132À3, 134À5, 140À1 see also operational risk; system risk terrorist attacks 1, 108, 232 terrorist financing, concepts 166À77, 178, 244À78, 280À2, 284 testing 30, 140À2 Thatcher government 99 third-party clearing 178, 193 third-party information 255À7 time value of money 30 timeliness quality, information 202À9 timescale factors documentation considerations 151À2 market risk 29 timing considerations, technology projects 135À6 traders 58, 112À13 training 3, 17, 55À6, 93, 97À8, 101À9, 116À17, 123À9, 134À5, 147À8, 159À60, 182, 189, 200À1, 205À7, 228À32, 287À88 client management 159À60, 182, 189 logs 103À4, 205À7 re-training 101, 134À5, 228À9 technology 128À9, 134À5 training and development programme (T&D) 205À7, 231À2 transparency, legal persons 167À70, 268À9 TRAX system 236 treasury 71À89, 112À13 331 case study 75À80 cash management 86À9 correspondent banks 87 functions 72À4, 85À9 funding 71À89 international payments 86À7 post-settlement environment 74À5 repos desk 74À5 risk management 88À9 roles 72À4, 85À9 settlements 85À9, 112À13 treasury risk see financial risk trust 179À95 trusts 42, 172À7, 257, 260 UCITS EU Directive 213 UK see United Kingdom unit trusts 2, 177 United Kingdom (UK) 8, 21, 41À2, 87, 228 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988 (Vienna Convention) 246À7, 248À9, 269 Convention against Transnational Organized Crime 2000 (Palermo Convention) 246À7, 248À9, 269 International Convention for the Suppression of the Financing of Terrorism 1999 269, 274 Security Council Resolution 1373 274 Security Council Resolution 1617 280 unsecured borrowing 80À1, 200À1 unusual transactions, FATF Recommendations 256À7, 261, 278 up-to-date quality, information 199À209 validation of request, information 201À4 332 Value at Risk (VAR) 29À30, 47 see also market risk vanilla products, concepts 27 VAR see Value at Risk Vienna Convention see United Nations, Convention against Illicit Traffic in Narcotic Drugs viruses 39À40 visits, client management 181À2, 187À8, 194À5 volatility, capital markets 11À12, 29 Wall Street Crash 1929 37 Wilde, Oscar 13, 23 INDEX wire transfers 80À1, 276 workflow analysis 104À5, 120À2, 148, 184À6 charts 120À2, 148 pressures 92À125 working environment 110 Working Group on Cross-Border Banking 165 World Bank 246 written contracts 218À24 Y2K 1, 137
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