enabling effective conduct risk

StratexSystems webinar

Enabling Effective Conduct Risk Management 19/02/2014

Introductions

CEO & Co-founder of StratexSystems, the leading provider of integrated strategy & risk management solutions on the Microsoft SharePoint platform

15 years plus in strategy and risk management

2006/07 -12 month / 21 organisation research project into the integration of strategy and risk management

2008 - Created the Risk-Based Performance Management methodology during various strategy and risk related engagements in the city

About StratexSystems

Our MissionTo provide an integrated strategy and risk management solution which enhances strategy execution, improves capital efficiency by 15% and reduces operational losses 25% while providing 100% confidence that your business is operating within appetite.

One client’s results“Since HML commenced its initiative to implement an enterprise-wide risk management framework in March 2008, we have reduced our Pillar 2 capital by 81.2% while delivering a 94% reduction in the value of errors and a 63% reduction in the volume of errors” – Head of Enterprise Risk, Homeloan Management Limited

The creation of the FCA introduced a new regulatory approach

3 Pillars Regulatory Approach

Outcomes

Firm Systematic Framework (FSF)

1. Consumers get financial services and products that meet their needs, from firms they can trust;

2. Markets and financial systems are sound, stable and resilient, with transparent pricing information; and

3. Firms compete effectively, with the interests of their customers and the integrity of the market at the heart of how they run their business.

FCA Objective

To make relevant markets work well so consumers get a fair deal.

Event-driven work Issues and products

The creation of the FCA introduced a new regulatory approach… and some confusion!But what is Conduct Risk?The Risk of a firm treating its customers unfairly and delivering inappropriate outcomes

What is Conduct Risk Appetite?The level of Conduct Risk a firm is willing to take to achieve its strategic objectives

"we do not have a master definition of 'conduct risk‘ - FCA

What has the FCA been saying to the market?

What does the FCA really want from firms?

Customers at the heart of your firm’s business model and strategy

“Good profits”

A strategic approach with strong senior management and board engagement

Cultural Change & Accountability

Not a narrow focus on compliance to rules

How to meet FCA requirements…and enable effective conduct risk management (and strategy execution)

Enabling software solution which embeds a Risk-Based approach

Proven approach to drive & sustain change

Risk-Based approach to managing your firm

Taking a Risk-Based approach to managing your firm

We wrote the book on integrating strategy & risk management

Risk-Based Performance Management (RBPM) is a holistic and integrated approach to strategy execution and risk management

Performance Management

Risk Management

Strategy Management

Appetite

What are we trying to achieve?

Are we on track?

What is our Risk Appetite?

Are we operating within appetite?

Governance & Communications

Culture

The Risk-Based Performance Management (RBPM) methodology is based on seven management disciplines

Business Drivers

Shareholder Value

2. Manage Performance

3. Manage Risk

1. Set Strategy

5.Governance

6.Communications

7.Culture

Capital ?Income

Share Price ?Economic value add

4. Appetite Alignment

Reputation

Profit

Appetite Appetite

Central to this integrated model for Strategy and Risk Management is the Strategy Map

The Strategy Map articulates how an organisation creates valueFi

nanc

ial

Cust

omer

Inte

rnal

Pr

oces

sLe

arni

ng &

G

row

th

Increase Investment Returns by 25%

Sustainable Growth

Increase Retention of competent staff by

10%

“their ROI is aligned to my

appetite”

Increase Shareholder value

Objective KPIs InitiativesTargets

Increase Investment

Returns by 25%

YTD % Increase in investment

returns25%

Implement new portfolio mgt system

Objective Statement of what

strategy must achieve and what’s

critical to its success

KPIs How success in achieving the

strategy will be measured and

tracked

Targets The level of

performance or rate of

improvement needed

Initiatives Key action programs

required to achieve Priorities

However, to create value, risk-taking must be aligned to strategy…Fi

nanc

ial

Cust

omer

Inte

rnal

Pr

oces

sLe

arni

ng &

G

row

th


Sustainable Growth


10%


appetite”


Objective Appetite AlignmentExposure

Increase Investment

Returns by 25%




Appetite How much risk

are we willing to run to achieve the

objective?

ExposureHow much risk

are we currently running?

Alignment Is our current risk-taking aligned to

appetite?

Moderate High Over-exposed

Effective risk management also supports value creation and protection...Fi

nanc

ial

Cust

omer

Inte

rnal

Pr

oces

sLe

arni

ng &

G

row

th


Sustainable Growth


10%


appetite”


Objective Risks MitigationThresholds

Increase Investment

Returns by 25%

Unexpected changes in interest rates

Unexpected Equity movements

Appetite Tolerances

Controls Initiatives Policy &

procedures Processes




RisksThe threats and

opportunities (risks) exist which may

impact achievement of objectives

ThresholdsThe appetite and

tolerance thresholds used to monitor risk

Mitigation The activities undertaken to manage risk

The Strategy Map can be used to demonstrate the role customer outcomes play in the firm’s strategy

Fina

ncia

lCu

stom

erIn

tern

al

Proc

esse

sLe

arni

ng &

G

row

th

Drive Shareholder value

Deliver Revenue Growth Control Costs

“We received good value”

“Their fees are clear and fair”

“Their solutions continue to meet our

changing needs”

“We have quick, convenient access to

our financial info”

Drive sales execution

Ensure effective Complaints handling

Deliver outstanding customer service

@ POSContinuously seek to

understand client needs

“We align our incentives to our appetite & desired

behaviours”

“We sell the right products, to the right

people, the right time”

“We leverage our data to deliver positive customer

outcomes

Information Capital Cultural Capital Human Capital

Having clear and achievable financial objectives is critical to ensure the firm is sustainable and will be around to provide on-going service

By convention, customer outcomes are expressed is phases you would like to hear your customers use to describe your firm and products/services

To deliver financial and customer outcomes, we must be clear about the key processes which will enable us to deliver those outcomes.

Underpinning the delivery of the key processes, financial and customer outcomes is the organisational culture.

The four perspective Risk Map can give greater insight into the risk profile, specifically from a Conduct perspective

1. Risks related to Financial outcomes Is our firm sustainable? Will we be around to provide on-

going service and product support?

2. Risks related to Customer outcomes Are we operating within our

conduct risk appetite? What are the current and

emerging conduct risks?

3. Risks related to Internal Processes What are our process risks and

how are they changing? Are we operating within our risk

appetite?

4. Risks related to Culture What are our culture risks and how

are they changing? Are we operating within our risk

appetite?

1 2

3 4

Appetite Alignment Matrix is one of our key innovations and a key tool for monitoring the alignment of risk-taking to strategy

Enables monitoring of the alignment of risk-taking to strategy

Enables the monitoring of risks which are outside of appetite

Also shows where we are taking too much and not enough risk

Changes the risk conversation

Are we operating within (your conduct) Appetite?

Do you have the ‘tools’ to know?

Over-exposed

Under-exposedAligned

Like objectives at the strategic level, a risk and controls framework can be wrapped around processes

20

Processes

KPIs Actions Key Risks

KRIs Actions Assessment Key Controls

KCIs Actions Assessment

Events

Certification

Risk Appetite

From a Conduct Risk perspective, define, manage and monitor key customer

processes, such as New Product Development, Sales Execution,

Customer service, Complaints handling etc.

At an operational level, process and initiative Matrix’s are used to align the operational level to the strategic

Operational Alignment Matrix can be used to align the operational level to strategic; Objectives Risks Controls

Use percentages to show the level of alignment 100% - Very Strong Alignment 75% - Strong Alignment 50% - Moderate Alignment 25% - Weak Alignment 0% - No Alignment

The Risk-Based Performance Management (RBPM) roadmap can be used to guide the implementation of an effective response to the Conduct Risk agenda

Define Strategic

Goals

Define Strengths & Weaknesses

Define Business Drivers

Define the Strategy

Define Processes

Define Initiatives

Define Operational

Risks

Define Operational

Controls

Define Indicators

Assess Risks & Controls

Monitor Appetite

Alignment

Define Strategic

Risks

Define Strategic Controls

Define the Business Model

Define Risk Appetite

Align Risk Appetite &

Strategy

Define Strategic

Objectives

Board Executive

Formulation Execution

The RACI model is embedded within our solution and is used to clarify and embed accountabilities for (customer) outcomes

“The buck stops here”

Those with Yes/No authority related to the objective, risk or

control.

“Keep in the loop”

Those involved prior to decisions or action related to the objective, risk or control.

“The doers”

Those people working on delivering the objective, managing the risk or applying the control.

“Keep in the picture”

Position(s) that need to know about decision or action related to the objective, risk or control.

PP

Introducing StratexPoint

Built on the ubiquitous SharePoint platform

Supports each of the Three Lines of Defence

Comprehensive in nature but modular in deployment

Our solution delivers:

High ROI High User Adoption High Levels of assurance that your

business is operating within appetite

StratexPoint is also a proven tool for supporting the 4th Line of Defence

StratexPoint is one of the most complete strategy execution & risk management solutions available today

Leverage your existing

technology

Business driven design

Risk-Based Performance ManagementBalanced Scorecard & Strategy Map

Enterprise & Operational Risk ManagementRisk-Based Internal Auditing

1st LineStrategy-focused, Risk Aware culture enabled

and embedded

2nd LineWork with the business

to build competitive advantage

3rd LineTake a Risk-based

approach to auditing and business assurance

78% of Fortune 500 companies Every day for the past five years, 20,000 workers have

joined the ranks of SharePoint users One in every five knowledge workers now has access to

SharePoint

Easy access to powerful MI &

Analytics

Underpinning our solution is a ‘conceptually sound’ data model which embeds a Risk-Based approach

Objectives

KPIs Actions Key Risks

KRIs Actions Assessment Key Controls


Events

Certification

Risk Appetite Processes Initiatives Systems People &

Roles Assets

Operational enablers are aligned to strategy

Entity

Business Drivers

Governance Commentary Workflows Audit Trails

Build a strategy focused, risk aware culture

Our solution enables firms to the requirements of Conduct Risk whilst driving business change and value

Customer Objectives

KPIs ActionsCustomer Key Risks

KRIs Actions AssessmentCustomer

Key Controls


Events

Certification

Customer Risk

Appetite

Customer Processes

Customer Initiatives

Customer Systems

Customer People &

Roles

Customer Assets

Operational enablers are aligned to strategy

Entity

Business Model

Governance Commentary Workflows Audit Trails

Build a strategy focused, risk aware culture

Example of a Overview Conduct Risk dashboard

Example ‘Bubble’ up Dashboard

Example Strategy Map

Example Risk Map

Indicator ‘Line of Sight’ Dashboard

Stratex Conduct Risk QuickStart

Delivering Effective Conduct Risk Management…Fast, at a low cost with guaranteed delivery

About the Stratex Conduct Risk QuickStart

Pre-built Conduct Risk template solution and implementation plan to enable an effective and proven approach to conduct risk.

Quickly establish the platform and approach to enable you to demonstrate you have an effective approach to conduct risk.

Proven, low cost, low risk solution

Clear set of deliverables within agreed timescales (30 – 90 days depending on initial scope)

Guaranteed delivery

Conduct Risk QuickStart Overview Plan

30 to 90 Days (depending on scope)

Discovery Deploy

Installation (SharePoint & Reporting)

UAT Live

Prepare and import existing conduct data (if applicable)

Review existing conduct approach & MI

StratexPoint Training

Admin Power User

Develop Conduct Risk ‘Reporting pack’ & custom MI

Handover

Next 90 Days Workshop & Roadmap

Design Build

Deploy Stratex Conduct Template

Conduct Risk QuickStart

Pre-built Conduct Risk template including; Conduct Risk Strategy

Map & Risk Map Conduct Risk Appetite

approach & tools Conduct Risk Performance

& Risk Scorecards Conduct Risk register Conduct Risk controls Conduct Risk indicators

(KPIs, KRIs & KCIs) Accountabilities model

(RACI)

About the Stratex Conduct Risk QuickStart

What is included?

Scoping and discovery workshops Support the initial installation of

StratexPoint on UAT and Live Deployment of a Conduct Risk template Import of existing Conduct Risk

information or data User requirements works to refine the

Conduct Risk approach & framework 1 day Administration training course 2 day Power User training course (x 1 – 5) Deployment and review all standard

reports Create a single customised Conduct Risk

‘reporting pack’ Full project management approach Next 90 days roll-out & embedding

workshop and roadmap 25 User Licenses of StratexPoint

Who will deliver & what will it cost The QuickStart is delivered

by 1 Business consultant 1 Technical consultant 1 Project Manager (50%)

The QuickStart is typically delivered in between 30 – 90 days depending on initial scope.

The QuickStart includes a full money back guarantee

Contact details

Andrew SmartCEOStratexSystems

Email: [email protected]: www.riskbasedperformance.comWeb: www.stratexsystems.com LinkedIn: http://uk.linkedin.com/in/ajsmartTwitter:@AndrewJSmart

mailto:[email protected]

http://www.riskbasedperformance.com/

http://www.stratexsystems.com/

http://uk.linkedin.com/in/ajsmart