The Business Challenge
A top tier bank in the Middle East, a joint venture with one of the largest European banks, wanted to design and implement an Operational Risk Management program. The bank selected Aptivaa to develop this program, which included four main components:

• Governance Framework
• Risk Self-Assessment Framework
• Loss Data Management Framework
• Key Risk Indicator Framework

Our Approach
Aptivaa assessed the current state of the bank's Operational Risk Management framework and benchmarked it against international best practices. Based on the outcome, we agreed with the bank on key priorities and an implementation road map using a modular approach to implementing a best practice framework. The different modules of the Operational Risk Management program are described below.

Governance Framework - We worked with the bank to develop a risk governance framework which included defining the roles, responsibilities and interactions of the business units reflecting both the bank's structure and a best practice approach to operational risk management. We also developed the entire set of operational risk-related policies and procedures for the bank.

Risk Self-Assessment Framework - We used a combination of top-down and bottom-up approaches to develop the risk self-assessment framework.

We conducted a survey among the business unit heads and line managers to understand their perspective of the business objectives, prevailing risks, and the existing control environment. The results of this survey provided good insights into the bank's current operational risk profile, which was then useful in moderating risk self-assessment workshops with a select group of business heads. The results of the pilot were well-appreciated by the bank and it was decided to roll out the implementation across the whole bank.

A key challenge in the successful implementation of any risk self-assessment framework lies in understanding the work culture of the organisation, and we ensured that our approach was tailored to reflect this.

Loss Data Management Framework - Aptivaa conducted a detailed study of key information flows across the bank to identify all significant sources of Operational Loss Data. As anticipated, there was a degree of reluctance in sharing loss data, as this was the first time the exercise was being conducted, but the clearly defined roles and responsibilities of key stakeholders in the exercise helped us overcome this challenge. Data reconciliation with the General Ledger and other databases was performed to validate the loss data collected.

We developed and delivered a robust loss data collection framework. The framework design was sufficiently comprehensive to capture all the required data, not only for modeling purposes, but also for root cause analysis, investigation and the identification of lessons learned.

Key Risk Indicator (KRI) Framework - Our team developed a two-tier KRI framework, which was the most cost effective solution for the bank. The Tier 2 KRIs, being the more granular and detailed indicators, were monitored by the business and support units themselves. This ensured direct involvement and buy-in from these units, and meant that the bank's Operational Risk Management team was only required to monitor Tier 1 KRIs, which were the more high level indicators derived from Tier 2 KRIs.

To ensure a comprehensive and holistic approach, we ensured that each KRI was mapped to the Risk Self-Assessment Framework and Loss Data Management Framework. This, in turn, was included in reporting to senior management for their analysis and action.

Business Benefits
The benefits of implementing best practices in Operational Risk Management went beyond meeting the compliance requirements of Basel II. The framework implemented by Aptivaa helped the bank to improve its operational efficiency, reduce costs and boost profitability. It also laid down a firm foundation for the Bank to prepare itself for the Advanced Measurement Approach of Basel II.