The Chessboard of OpRisk Regulatory Capital

The battle for control over the op risk regulatory capital agenda has been fascinating to watch, rather like a game of chess. So, what happened on the regulatory chessboard? Here’s a summary: The banks played white and opened with the ‘regulatory capture’ gambit. In a...

A View from the Chairman

Our mission “to position Risk Accounting as the universally adopted method of identifying, quantifying, aggregating, and reporting all forms of non-financial risks” is unquestionably ambitious. Indeed, we are constantly reminded of the challenges we face. For example,...

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We are constituting our founding Risk Accounting Standards Board (RASB) that will also function as our non-profit’s board of directors. If you are interested in serving in this capacity please write to me in confidence at peter.hughes@rasb.org or call me on +44 7766...

Message from the Chairman

It’s almost 20 years ago that I was asked by the Chase Manhattan Bank’s COO, Rick Mangogna, to form and lead a team with a mission to design and implement a risk reporting framework for global operations. We soon understood that achieving our mission depended on the...

Welcome to RASB

Who We are

RASB is the world’s leading Risk Accounting professional body. We are a not-for-profit organization, limited by guarantee, that is run by its members for the benefit of its members. RASB combines the attributes of a global professional and standards setting organization with modern data sharing to provide benchmarking and other data services to its members as well as supporting regulatory, governmental and other public disclosure requirements. RASB membership is open to all corporate entities interested in implementing the latest, leading edge approaches to non-financial risk quantification and management, as well as individuals who wish to pursue a career in Risk Accounting.

Our Mission

Our mission is to position Risk Accounting as the universally adopted method of identifying, quantifying, aggregating and reporting all forms of non-financial risks.

Our Structure

RASB’s target operating model comprises a global network of not-for-profit, private legal entities limited by guarantee. Where this legal form is not available a similar alternative will be adopted. The lead entity (RASB HQ) sets operating policies, manages global relationships and contracts and delivers support and administrative services to the global network. Country or regional RASB entities deliver support and administrative services to corporate and individual members.

Risk Accounting Software

RASB commissions and supervises the development of software that incorporates approved Risk Accounting standards. It is designed to have maximum flexibility and be readily adaptable to the highly complex requirements of large financial institutions. Its modules can be implemented either as a standalone end-to-end solution incorporating risk and control self-assessment (RCSA) or integrated within an existing information infrastructure. The key component is the RU calculation engine; other components can be integrated with solutions offered by compatible technology providers, configured using existing platforms or through a de novo in-house development.

The calculation engine can be easily positioned between the data integration layer and the presentation layer (reporting, analysis, dashboarding, alerting tools) used by the organization. It can be deployed on-premise, in a 3rd party cloud, as a physical hardware device or a virtual device on a variety of operating systems and connectivity options. Implementation options may vary depending on the complexity of the existing infrastructure, the results that need to be obtained, and time and budget constraints.

 

Message from the Chairman

Welcome to RASB – The Risk Accounting Standards Board

It’s almost 20 years ago that I was asked by the Chase Manhattan Bank’s COO, Rick Mangogna, to form and lead a team with a mission to design and implement a risk reporting framework for global operations. We soon understood that achieving our mission depended on the successful definition of a common risk measurement method that could consistently and reliably identify, quantify, aggregate and compare all the diverse exposures to risk present in bank operations.

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Risk Accounting

Explanatory Note

Risk managers have adopted a number of terms to describe the risks inherent in the operating environments of financial institutions. The most widely used are ‘operational risk’ and ‘enterprise risk’. More recently, a further term has emerged… ‘non-financial risk’. We believe these three terms are essentially synonymous. Accordingly, RASB has adopted the term ‘non-financial risk’ to mean all the risks inherent in the operating environments of financial institutions, including operational and enterprise risks.

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Overview

Risk Accounting is a new and revolutionary method and system that identifies, quantifies, aggregates and reports exposures to non-financial risks.

RASB has defined a new, additive, standard unit of measurement for non-financial risks, unique to the Risk Accounting method, called a Risk Unit or RU.

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RASB Definitions

Exposure to non-financial risks exists where a financial institution fails to adequately plan, organise, manage and control its internal risk-mitigating activities and processes.

In contrast, exposure to financial risks exists where a financial institution intentionally creates external financial exposures with customers, intermediaries…

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The Portfolio View

Non-financial risks cannot be effectively managed without first constituting the complete portfolio of controlled and audited non-financial risks.

A ‘Portfolio View’ is the essential foundation for effective risk control, public disclosure, the application of tried and tested portfolio risk management methods (trending, ranking…

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Key Attributes of Risk Accounting

The Risk Mitigation Index (RMI) is a measure of risk culture as it blends qualitative and quantitative risk attributes from across the enterprise into a single metric.

Accordingly, risk governance is focused on planning and implementing strategies aimed at continually improving the RMI.

The Risk Accounting Standards Board (RASB)

Peter Hughes

Peter is Chairman of the Risk Accounting Standards Board. He is a chartered accountant and a visiting fellow and member of the advisory board of Durham University Business School’s Centre for Banking, Institutions and Development (CBID) research group. He was formerly a banker with JPMorgan Chase where he held senior positions in finance, operations, risk management, treasury & trading and audit.

Dr. Colin Lawrence

Colin is currently on the Board of OSTC Ltd where he chairs the Risk and Compliance Committee and he is additionally a member of the Audit Committee. He also sits on the academic advisory board of IHS Markit and PRMIA UK (Professional Risk Managers’ International Association). He is an honorary visiting professor of risk management at the UCL in the department of computer sciences and a senior advisor to Stratagem, a strategic consulting company, and to Basinghall Analytics.

Dennis Philip

Dennis is a Professor in Finance at the Durham University Business School and Director of its Centre for Banking, Institutions and Development (CBID) research group. He holds a PhD in Finance from Cass Business School. His research contributes to the understanding of the interactions between firm characteristics and financial markets. His research has been funded by financial companies, central banks and recently from the European Commission.

Mahmoud Marzouk

Mahmoud is a lecturer in accounting and finance at the University of Leicester School of Business and a member of the RASB Risk Accounting Standards Board (RASB). He holds a PhD and an MRes from the University of York. Mahmoud has extensive teaching and research experience in Egypt and the UK. In addition to his extensive teaching experience across a range of Accounting and Business modules at both undergraduate and postgraduate levels he also mentors and supervises undergraduate, postgraduate and PhD students.

You...

If you have an interest in risk quantification, relevant industry or research background and a drive to contribute to changing the way risk is managed in the financial services industry and beyond, then this could be the place for you.

Read more…

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Click Here to Try our Inherent Risk Calculator

See for yourself how Risk Accounting can help you calculate the Inherent Risk of a specific product type and based on a certain daily transaction volume. This is the first step in understanding our method.

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Monetary Value of an RU

One of RASB’s longer term aims is to calculate the monetary value of an RU (RUm) by modelling non-financial risk loss data correlated with related context information in the form of Residual Risk RUs. Once determined, the RUm can be used to estimate non-financial risk related expected losses (Residual Risk RUs x RUm).

Expected losses calculated in this way can be used to risk-adjust audited financial statements, similar to CECL accounting provisions for credit risk. This creates the possibility to lobby regulators to adopt the RUm in the determination of regulatory capital requirements for non-financial risks providing a high degree of risk sensitivity, simplicity and comparability in capital adequacy calculations.

What Experts Say?

As published in the “Comments on Risk Accounting” by Henry Stewart Publications’ “Journal of Risk Management in Financial Institutions”

[1752-8887 – 2016, Vol. 9, 4 413–420]

“…the first mechanism proposed to integrate the major components of risk in a large institution”

“…represents a sizeable step forward in the search for a practical global solution to enterprise risk management (ERM)”

Julian Williams, PhD

Durham University Business School

“…(the) approach could be a meaningful way of establishing a common metric for operational risk, an area in risk management which, after many years, is still lacking analytical rigour”

Madelyn Antoncic, PhD

Principal Global Investors

Where Next with Operational Risk? – GARP.org article by Peter Hughes

Observation and measurement issues pose continuing challenges As a researcher, I spend a good deal of time reading academic papers. One recently came into my hands written by an eminent group of academics and practitioners on the topic of systemic risk and financial...

The Chessboard of OpRisk Regulatory Capital

The battle for control over the op risk regulatory capital agenda has been fascinating to watch, rather like a game of chess. So, what happened on the regulatory chessboard? Here’s a summary: The banks played white and opened with the ‘regulatory capture’ gambit. In a...

We are delighted to announce the appointment of Dr. Colin Lawrence as a member of the Risk Accounting Standards Board (RASB)

We are delighted to announce the appointment of Dr. Colin Lawrence as a member of the Risk Accounting Standards Board (RASB). Colin is currently on the Board of OSTC Ltd where he chairs the Risk and Compliance Committee and he is additionally a member of the Audit...

A View from the Chairman

Our mission “to position Risk Accounting as the universally adopted method of identifying, quantifying, aggregating, and reporting all forms of non-financial risks” is unquestionably ambitious. Indeed, we are constantly reminded of the challenges we face. For example,...

The Rise of a Complexitocracy

Can accounting help restore simplicity and comparability to financial and risk reporting? Published by Peter J. Hughes on GARP.org (Fri., Jly 31st, 2020) “Complexitocracy” is not in the dictionary. But maybe it should be. If it were, the definition would be something...

Is accounting to blame for the pandemic?

by Peter j. Hughes, published by PRMIA in the July 2020 issue of "Intelligent Risk" Banks and airlines have something in common: they both have the potential to transform an isolated and sometimes freak event into a global economic crisis. In fact, any industry whose...

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Research Update: A Common Metric for Non-Financial Risks

In conjunction with the Durham University Business School, we are testing the inherent predictiveness of the RU… a common, additive metric designed to express all forms of non-financial risk (NFR). For more information on the RU, click here. Our test involves...

We Welcome Paul Costea as Chief Operating Officer of RASB

We are pleased to announce the appointment of Paul Costea as Chief Operating Officer of RASB with immediate effect. In addition to his general administrative responsibilities, Paul will specifically focus on membership communications and services and our relationships...

Accounting’s Operational-Risk Missing Link

A void that limits the influence of risk management and, at worst, increases the probability of unexpected losses. It is sound accounting practice to adjust accounting profits for expected future losses associated with the exposures to risk created when making those...

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