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Dresdner Kleinwort Wasserstein and Raft International establish new standard for operational risk management

Investment Bank Dresdner Kleinwort Wasserstein (DrKW), and Raft International, the component-based software solution provider to the financial services industry, today reveal that they have designed, developed and implemented a near real-time global operational risk management solution, already live in the Bank’s London, Frankfurt, New York, and Asian operations.

The browser-based solution, which runs on the Bank’s corporate intranet, is a rules-based workflow oriented solution which maps the Bank’s corporate structure, geographic spread, business processes, product structure and control environment into a fully automated loss measurement and management solution.

"We started in early 2000 to look at automating loss data collation and operational risk reporting for the bank," states Jonathan Howitt, Director of Operational Risk at Dresdner Kleinwort Wasserstein in London. "Once we had established our overall risk control framework, Raft International helped us build a prototype, which we took to front and operations management as a solution for their error reporting process. We went live with Radar, our name for the application, in London in December 2000, and subsequently this year in Frankfurt, New York, Hong Kong and Tokyo. As well as sales, trading, and settlement errors, the system has also been rolled out to various support activities for more generic incident capture purposes.

The global implementation means that all loss data is centrally available within the Bank’s Risk Control Group as soon as it is recorded, as well as facilitating a consistent global measurement and management approach. The entire application is parameterised and meets all of the current suggestions for loss event typing and categorisation proposed for the New Basel Capital Accord. "The architecture we have used allows us great flexibility and we were easily able to add the new requirements once they were known" says Howitt. "As the industry move towards finalising the requirements, we will be able to adapt our existing loss data to comply with them. We have also concentrated on data collation and analysis because we believe this will be a crucial aspect in complying with the advanced measurement criteria to reduce our regulatory capital allocation".

"The next phase of the project, scheduled for completion in Q1 2002, will add key risk indicator functionality to Radar” states Howitt. "Now that we have the platform and engine for managing loss incidents, we are building the early warning side of the solution. By combining loss data and risk indicators on the same platform, we can see the inter-relationship between the two – for instance, for a given activity we can profile how changes in staffing levels, system performance, and business volumes affect the frequency and cost of loss incidents. This kind of information in turn allows the Bank’s executive management access to up-to-date information and provides the ability for rapid decision making".

As is its practice, Raft International has taken the component assemblies that form the Dresdner Kleinwort Wasserstein Radar solution and has commercialised these to create Raft Radar, a product that the company believes will become the industry standard tool for measuring and managing operational loss incidents. "The financial services industry has no choice but to look at operational risk," says Mike Finlay, Sales and Marketing Director at Raft International and tasked specifically to take Raft Radar to market. "Although a few players may try and ignore the requirements as long as they can, the regulators are serious about operational risk and are already implying that all organisations will need to be able to provide either 5 years of internal historical loss data or a combination of 3 years of internal data with a similar period of external market data if they want to qualify for an advanced measurement approach. This means that everyone needs to start collating their loss data now, including any data for the last calendar year".

Raft Radar is now available to the market and will be showcased at Operational Risk 2001 in Kilkenny, Ireland and Operational Risk Management for Financial Institutions in London, both early in October 2001. The product will also be formally launched to market at SIBOS 2001 to be held in Singapore in mid-October.