Risk in an Operations environment

Understanding the risk sources and the impact of that risk requires a process called risk mapping. This essentially involves the analysis of the workflow and the critical tasks through the clearing and settlement process. It is also prudent to consider any risk sources that occur pre-clearing and settlement as these form part of operational risk and may also contribute to credit and or market risk management processes. These would include pre-trade checks on:

• Authorized products

• Deal limits

• Position and exposure limits

• Counterparty limits

• Liquidity limits

Other areas in the organization such as credit and compliance will monitor some of these. However, the Operations area is involved in some of this process as the information produced on, for instance, positions is critical to the accurate risk management process for positions and other limits.

The risk cycle, as Figure 5.1 shows, is a continuous process. It does not take holidays and it can occur however busy or quiet a business might be. Controls must recognize this and be able to address risk 24 hours a day, 365 days a year.

Figure 5.1: The risk cycle. ( Source: Computer Based Learning ...