A common set of about 35 key risk indicators (KRIs) in the trading and sales business line have been identified by the Trading and Sales Working Group of KRI Services as one that should generally be adopted as a best practice. Defining these sets represents a milestone for this three-year-old service and a significant achievement for the working group.
The chairperson of the Global Trading and Sales Working Group, Brian Johnson of Investec plc, said "Key Risk Indicators are a fundamental component to ongoing assessment and evaluation of risk. While different banks are at different stages of identifying, collating and capturing KRI data, it is good time for the Trading & Sales community to be thinking about KRIâs. We have identified this set of roughly 35 indicators that we believe it would be best practice for trading and sales operations to use. We hope these will be widely adopted so that institutions may:
(a) Focus their KRI programs on capturing data on these critical indicators
(b) Benchmark these KRI values with their peers; and
(c) Encourage others to adopt these KRIs as a best practice.
The Trading & Sales Working Group is now starting to benchmark these KRI's. Getting to this stage has been no easy task. KRI Services has built a secure technology platform and set of institutional arrangements to ensure data security, confidentiality and anonymity. At the same time, participating members have had to agree to submit data in the right form at the right time, with any necessary internal clearances arranged beforehand. We believe it will be worth it, however. Participating firms will benefit greatly when they can tell if their values for these critical KRIs are within or outside normal thresholds for the industry."
Charles Taylor, RMA director of operational risk, said, âThe Global Trading and Sales Working Group is at the forefront of realizing the vision of KRI Services since the programâs 2003 inception. The founding firms all worked on the KRI Library Services initiative with an eye toward establishing a robust and reliable benchmarking service. We expect this milestone to be the first of a series in the coming months.â
RiskBusiness managing director and facilitator of the Trading and Sales Working Group, Mike Finlay, said the success of KRIs depends on the value delivered. Finlay said: âAny indicator program within a firm has three types of user:
1. Managers who run business and function units.
2. Middle managers who are interested in exposures, performance and control effectiveness.
3. Senior/executive management who want to know when exposures exceed the defined risk appetite of the firm.
A common set of best practice KRIs like that defined by the Trading and Sales Working Group can help all these groups know when they are looking at a sensible set of indicators. By starting to benchmark outstanding credit derivative confirmations, the Working Group is seeking to both establish standard industry thresholds and to facilitate greater transparency in this critical business area.â
The Trading and Sales Working Group has representatives from, amongst others, Citigroup, RBC Financial Group, Dresdner Kleinwort, Investec, FirstRand, Comerica, and Nomura. The Working Group welcomes wider participation.
KRI Services has supported the establishment of several industry working groups in different business lines and geographies. These groups are working to improve KRI usage in their specific areas, including the launching of benchmarking. Groups currently operate at both the global and regional level, in the areas of:
â¢ Trading and Sales
â¢ Payments and settlements
â¢ Private banking
â¢ Retail banking
â¢ Asset management
â¢ Business continuity
â¢ Information technology.
Trading and Sales is one of the most advanced working groups.
Additional indicator benchmarking is expected in the near future in the areas of anti-money laundering and business continuity management globally, as well as in regionally for specific aspects of home loans and credit cards in Australia, South Africa, the United Kingdom, and Central and Eastern Europe.