Scenarios for operational risk: Improving quantitative aspects

Scenarios for operational risk: Improving quantitative aspects

Hafsteinn Gislason, VP Operational Risk, ERM at CIT Bank NA reviews scenarios for operational risk and includes an insight into how financial institutions can best manage loss projections under CCAR.
Hafsteinn, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

My background in Operational Risk started in the financial turmoil in Iceland where I gained valuable experience that was transferrable to the banking environment in New York where I now reside. Throughout my years in Operational Risk I have come across several realizations that have helped me better grasp the subject, such as treating Operational Risk as a service, importance of risk identification for process improvements, relationship between Operational Risk elements through a common taxonomy, and the hidden value of forward looking exercises such as CCAR. Expanding on these lessons learned in CCAR and by exploring relationships between all Qualitative Risk elements in a shared taxonomy are of high interest.

At the Operational & Enterprise Risk Management Congress you will be speaking on your insight regarding – Reviewing scenarios for operational risk and improving quantitative aspects. Why do you believe this is a key talking point in the industry right now and what can risk professionals gain from this insight?

CCAR can provide a great opportunity to talk through the individual scenarios with business leadership, as well as how your programs support the findings and highlight risk. Benchmarks, such as combinations of different internal/external information, can add to the understanding of how conservative these quantitative measures are. A challenge like CCAR that requires a number of initiatives for compliance, the key is to turn those initiatives into best practices that increase the value of all connected programs.

How can financial institutions best manage loss projections under CCAR? And what impacts are they most likely to encounter?

It will require investment, maintaining a good control environment, and documentation of processes, as well as potential investment in system upgrades. Biggest impact is time, CCAR requires a lot of time from experienced people. By integrating it with the current framework and let the required improvements benefit connected framework components, there can be a significant return on the required investment.

What does the future look like for the operational risk professional? And what potential challenges do you see ahead? And theoretically, how would you handle them?

A lot more collaboration between qualitative risk areas will be expected. The challenge is getting everyone to agree and synchronizing all the moving parts to a sustainable and flexible solution. How, write a great business plan with all involved and CCAR could be a starting point.

Hafsteinn will be presenting at the Operational & Enterprise Risk Management Congress 2017. Hafsteinn Gislason is a Vice President in the Risk Management Group of CIT Group Inc. and CIT Bank, N.A. The opinions that he is presenting in this presentation are his own, and do not necessarily represent the views or positions of CIT Group Inc. or CIT Bank, N.A

We asked Hafsteinn some informal questions...

What is the one item you can’t live without?
Coffee

Favourite way to wind down after work?
Olympic weightlifting

Is the tomato a fruit or a vegetable?
Vegetable, in most cases you eat a tomato as a part of a meal, not by itself as you would with a fruit.