Zurich Financial Services Group launches new enterprise risk consultancy - Zurich IC2 - offering operational risk solutions to the banking sector.
Zurich Financial Services Group has launched a new consulting subsidiary - called Zurich IC2 - that will provide banks with methodologies and technologies to manage operational risks and help to comply with the reporting requirements of the forthcoming Basle II Capital Accord and potentially reduce the amount of risk capital they need to hold in reserve to cover operational risks.
Under the anticipated terms of the final Accord, due to be agreed later this year, it is expected that banks will be required to track internal operational risk indicators and incidents and losses for their individual institutions.
Zurich IC2 offers a combined consulting and software service designed specifically to help financial institutions assess, monitor and manage operational risk, equipping them to better deal with the anticipated new requirements.
"What Zurich IC2 offers is a balanced approach to addressing operational risk needs," said Wolfgang F. Friedel, president and CEO of Zurich IC2."We look at both quantitative and qualitative issues as we aim to help individual financial institutions save significant sums by eliminating unnecessary costs associated with operational risk. This may occur through reduced losses, improved operational risk management or improved strategic positioning. At the same time, our offering helps banks put processes in place to meet the operational risk criteria recommended by the new Basle Capital Accord."
Although the Accord is not expected to come into force until 2004, banks need to start preparing now to ensure the requisite processes are in place.
The proprietary consulting and technology solutions offered by Zurich IC2 assist banks with both the measurement and management of operational risk resulting from failures of internal processes, people, technology and external events.
US Federal Reserve Chairman Alan Greenspan emphasised in a recent speech the link between operational risk management processes, such as those offered by Zurich IC2, and shareholder value. "The revised Accord promises to promote not only better risk management over a wider group of banks but also less intrusive supervision once the risk management system is validated," said Greenspan, speaking at the Conference of State Banking Supervisors in Traverse City, Michigan. "Better risk management and supervision may well focus bank management on its real objective: maximizing shareholder wealth."
In relation to Greenspan's comments, Wolfgang F. Friedel added: "The new Basle Capital Accord is widely expected to negatively affect banks' balance sheets, income statements and profitability, but this need not necessarily be the case. If properly managed, it may present a great opportunity to increase capital efficiencies."
Zurich IC2 recommends a four-step operational risk management process for banking institutions that consists of risk identification, tracking, measurement and management. Zurich IC2 consultants launch the process with an initial identification of a financial institution's inherent risks through use of both the proprietary IC2 Profiler methodology and the IC2 First external loss database, which is a web-based application, therefore facilitating enterprise-wide implementation.
These tools assist with the identification of risk indicators on both a business unit and enterprise-wide basis. In the next stage of the process, the client monitors risk indicators using a state-of-the-art data collection tool that is based upon fuzzy logic. This software aggregates a series of risk indicators into a top-level early warning system that allows senior management to identify problems before they become actual losses.
In the final stage, Zurich IC2 has the experience and industry knowledge to assist financial institutions in determining the appropriate capital reserve levels required by international regulators and to establish appropriate risk management programmes.
