The revised corporate strategy was the result of a Strategic Review and Membership Survey conducted during 2012. The results were presented at the AGM by Simon Ashby, Vice Chairman of the IOR Council and Chairman- elect of the IOR Council.

As most of the members of the IOR work directly or indirectly in the financial services industry, the IOR will maintain a specific focus on financial services for the next three years. However, as operational risk is a cross- sectoral discipline, the IOR remains open to members from other industry groups. Once the membership body becomes more diverse, the industry focus of the IOR will be broadened.

The IOR will continue its work to facilitate knowledge transfer with three distinct programmes:

• The IOR will work with a selected number of universities globally to recognise operational risk-related diplomas, degrees and advanced qualifications. Students will be enrolled as Associate Members of the IOR for the duration of their studies.
• The IOR will continue its work on developing a certificate in operational risk. Non-members undertaking their studies will also be enrolled as Associate Members of the IOR.
• The IOR will continue to accredit carefully selected third party courses and events and advertise these to the Membership.

The IOR will continue to develop and provide more information services, including more of the successful Sound Practice Guidance Papers.

Events, seminars and networking are one of the highest priority benefits required by the Members according to the results of the Membership Survey. The design, scheduling and conduct of events and seminars therefore will be a primary function of the IOR’s Country Chapters going forward. Events will be supported centrally through a database of events and suggestions and feedback disseminated to each Chapter.

The growth of Chapters will be accelerated, and Chapters will have more autonomy and will be able to raise their own sponsorships, run their own events, recruit Members, and manage local finances.

The new corporate strategy has resulted in a number of changes to the IOR’s governance arrangements. The single tier management group of the IOR will replace the present two tiers, leading to more efficiency. The numbers of Directors will be increased to 15 and there have been several other personnel changes on the IOR council, not least the retirement of current Council Chairperson, Edward Sankey. Edward retired at the end of the maximum term of office and is expected to be replaced by Simon Ashby as Chairman of the Council at the next Council meeting.

Bharat Thakker was elected as a new Director of Council. Bharat works at Investec Bank plc where he is Group Head of Operational Risk. The Institute is delighted to welcome Bharat to the Council.

Asim Balouch, Head of Operational Risk Central at Barclaycard, was elected Honorary Treasurer, taking over from Jonathan Birrell-Gray.

Simon Ashby and Mike Finlay, chief executive of RiskBusiness International, were re-elected as Directors of Council for a second term.

Notes to editors:
The Institute of Operational Risk (IOR) is a professional body, existing to serve its Members and to promote and develop the discipline of operational risk management. It was formed to provide professional recognition and to enable Members to maintain competency in the discipline of operational risk.

The Institute, as reflects the industry, has a drive and passion in regard to operational risk in developing standards and education, also providing a forum to exchange ideas and best practice within the industry.

I’m going to keep this address fairly brief because we must have plenty of time for the later presentation and discussion of the work done by Council members on the Review of Strategy, Organisation and Governance.

You have seen the formal report of the year to 31/3/12. It showed further progress by the Institute including the inaugural meetings of chapters in Nigeria and Germany. Membership numbers continued to rise. Although not yet ten years old, already 40% of our membership is outside the UK.

Our aim is to serve our members by providing opportunities to gain expertise and knowledge of the discipline and providing the means of recognition of this. At the same time the Institute seeks to use its leading position in the discipline to inform and influence thinking and understanding of Operational risk: in public, with regulators and legislators, and in firms’ management.

We continued to review and accredit academic courses and to endorse conferences and courses of short duration. We were asked for a reading list for Leicester University students, which was an interesting exercise for those of us who did it.  A team has been working on the concept of an IOR course and designs are well advanced. The Sound Practice Guidelines continue to be published, two in 2011-2012, and three underway at present. The IOR contributed to the debate over the Vickers Banking Commission, and has contributed to the Tyrie Parliamentary Commission. Members are actively engaged in major enquiries and projects, from the LIBOR Review through the development of an improved British Standard for Risk Management, to promoting better attitudes to risk, behaviours, and values at the personal level in the City Values Forum. In Singapore, one of our directors is repeatedly delivering a course on Risk Management at the leading University for Science and Technology.

The life of organisations is never smooth, and so it has been with us since we last met. Our IT Provider found an attempt had been made to use our website for a bot attack and advised that we should upgrade our IT, that is to say bring forward something we’d planned for later years. This involved moving to a new content management application, the underlying system, so it was quite fundamental. It was a major piece of work, and even the user testing took some time. However we are now up and running.

In the meantime preference was given to applications, building our member numbers and supporting revenues.

The most evident consequence is that we were unable to issue renewal notices and reminders of renewal. It is only now that we can start catching up with the back load. I hope the members affected will recognise that this has not affected the services provided to them, including the website.

Of course the delays in renewals have had an effect on the Institute’s immediate revenues. The Council in prudence responded to this and the unplanned expenditure on the IT upgrade, by constraining expenditure elsewhere, for example in using PR services and doing more of that from our own resources and that of some members’ firms.

Membership numbers at 31/3/12 were 278. Since then there has been a drop in application flow as a result of stronger enforcement of application criteria – we were getting a lot of spurious applications and casual applications. Regarding renewals, we will have to await the response to chasers this week for the delayed renewals. It is worth bearing in mind that whilst we have many long term members, all membership organisations experience a cycle where some members join and may then leave after two or three years. We do not yet know how strong an effect that will be this year.

Once again it is a pleasure to report the international progress of the Institute. Our newest chapters in Nigeria and Germany continue activities which are well supported and I get enquiries from other places. If we made every enquiry a Chapter we would do very well. However to minimise the chance of false starts and representation problems further ahead, we always ask interested people to pull together a group of three or more who can share the load.

Scotland

In Scotland there have been four events this year, including the Second Annual conference of the Chapter last month. Again this was well attended, and the quality of the speakers was commented on very favourably. I am grateful for the work done by the Committee there comprising Katie Cowan, Allan Barr, Brian Rowlands and new members of the Committee, Trish Crabb, Nigel Watt, and Christoph Woell, led by Caroline Tinsley who does a great deal to bring together all the contributions.

Nigeria

As previously reported the inaugural meeting took place in April 2011. Since then 5 seminars have been held, including two since the last AGM in March. The Chapter is going through the formal process of Registration in Nigeria. We are grateful to the United Bank for Africa for their continued support of the chapter. The Chapter Working Team comprises Edima Ben Ekpo as leader and here today, and OIaniyi Olalemi, Chika Nwachukwu, Eneni Oduwole, Samuel Ekanem, Esther Ekpe and Akinola Odedina.

Germany

In the year under review the chapter held four events solo or in partnership and a further three since our last AGM. These have been well attended as I saw myself when I attended one. In addition Walter and his colleagues have generated interest and furthered the discipline through articles in outside publications as well as our own, and taking a high profile at conferences, and the sound Practice Guidelines.

German activities are led by Walter Dutschke, with Dr. Gerrit-Jan van den Brink, Prof. Dr. Thomas Kaiser, Joachim Pfeifer and Bodo Schmidt.

Far East

Our first Chapter continues its strength and vigour. As well as events for the members, some of the Committee have promoted the development of Operational Risk Management in the region. I mean no disrespect in not setting out the specifics because the list is so long. But I can say that they, and Dominic Wu more than anyone, have put a lot of time into teaching at universities in Hong Kong and Singapore, and also mentoring students. They are sought out for speeches and presentations, and to join Fora. They contributed to preparing the ORM Handbook published by the Hong Kong Institute of Banking. Through all this, members there have contributed to some of our Sound Practice Guidance, to the Application Assessments and to Newsletter production.

Chaired by Dominic Wu, the committee comprises Sue Pang, Liza Ching, William Tang, Wing Cheng, Ben So, Raymond Poon, Jacky Leung, Raymond Lee, Kelvin Lok, Sondra Park, and Viviek Chatrath. Sue Pang and Liza Chung have also helped with the IOR Newsletter and with Guidelines for which we are very grateful.

London

We have had six events this year which have been well attended. I am grateful to John Chapman and Helen Pykhova who organised them. A number of presentations at conferences have been made, and sometimes it has felt like an IOR get together. These presentations have been in the UK and abroad, and just speaking for myself I have done numerous presentations, including in Geneva (with Simon) Moscow and Budapest. I generally slip in a sales piece for the IOR and I would urge all to do that when the occasion arises.

I would like to acknowledge and thank a number of people who have given a lot of time to the Institute on the Executive Committee: Asim Balouch, Stephen Murgatroyd, Michael Faber, Alan Dunk, Trevor Bedeman, John Chapman, Pravinder Arora, Brian Rowlands, Jimi Hinchliffe, Daniel Golding and others who have supported them.

Since the last AGM, Jonty Birrell-Gray decided to resign as Treasurer and Director. Increased demands elsewhere meant, with regret, he could not give the time and attention to the IOR responsibilities that he felt it needed. We were very sorry to hear that. The books Jonty picked up from the previous Treasurer, who himself had done a great job in the years of founding the IOR, were brought into line with the normal procedures of accountants in established organisations. Jonty did that very quickly, updated the banking arrangements, and handled the introductions of chapters apparently effortlessly. At all times, Jonty’s advice was invaluable. I delighted that Jonty is here tonight and can hear this expression of great appreciation and thanks.

Earlier this year Council commissioned a survey of members. It was the most extensive survey we have ever done. We were told that the three most important features of the Institute to members were networking, events and professional accreditation. Whilst we have aimed of these, the survey has provided direction to the Strategy Review.

I retire as director after having the honour to serve the maximum term, and I thus conclude my time as Chairman of the Council. The work I have been able to do has only been possible because of the support and involvement of many members. I am very grateful to all of them for their part in the running and development of the IOR, the promotion and development of the discipline, and providing the professional development opportunities we do. It has had its frustrations when the constraints of a voluntary body with limited resources of time and money hold us back, and especially when unexpected events temporarily divert us from our plans. But in the years I have been giving time to the IOR from its inception, (Michael Faber and I have both held positions since the start, and now Michael will be out there on his own!) figuring out how it will work, running the events steam and now this, it has always been a source of satisfaction. I look forward of course to still being an active member and will of course continue to support the IOR to all who will listen!

I would like to finish by telling of two stonemasons in the yard dressing stone. They were asked what they were doing. One said “I’m shaping this stone so that it will fit perfectly in the walls.” The other said “I’m building a cathedral.” We likewise are engaged in a task in building this Institute and the discipline, with two perspectives in mind.

This is the prepared text of the Chairman’s Report, which due to pressure of time in the meeting was delivered slightly abbreviated.

The keynote speaker for this event was Andrew Sheen from the FSA who was extremely well received and spoke about the importance of Loss Data Collection.

Other guest speakers on the day included George Clark, Hansruedi Schuetter and Professor Tony Blunden. A full breakdown of the day’s event including individual speakers, their presentation slides and biographies can be found by clicking on the following link…..

http://www.gcu.ac.uk/scottishior/presentations2012/

If you have any queries or would like to know more about the Scottish Chapter, please contact Caroline Tinsley at ctinsley@ior-institute.org

The abbreviation IORM is not a new product of one of the largest computer manufacturers. The “I” stands for “integrated” in the sense of an approach that brings together the different parts of operational risk management into a meaningful whole for the benefit of all concerned.

This integrative, holistic approach was the central theme of the forum on Operational Risk 10th May in Cologne.

It was about working with the mainstays of Operational Risk Management namely Legal, Compliance and Insurance Management.

The weaknesses of the approach of “Every Man for Himself” were pointed out as well as many redundancies in tasks and procedures and instruments used in reporting. Board members often have to deal with reports from various fields whose contents overlap each other, but ultimately do not match.

For IORM communication and cooperation are crucial and a challenge for the leadership culture. Ways and examples were shown how the IORM in the organisation can be developed -­‐ bilateral service level agreements and regular exchanges of lessons learned and planned projects and many more.

We have to focus on the causes, including the familiar “knowledge is power -­‐ why should I share this power?”. To develop incentives for behavioural change is the challenge.

The second focus of the forum was the approach of IORM related to the operational risk-­‐related types of risk. Especially the use of the reputational risk in practice was highlighted and, what a surprise, it shows a very heterogeneous picture with good examples, but also various improvement approaches.

Any consideration of the “financial industry” is important to note that supervision is not only on the amount of time, but also actively contributes to the further development process.

The forum was an open, lively exchange between the speakers, panellists and participants. It is hoped that an idea or two finds its realisation in practice.

Walter Dutschke
German Chapter

Membership is truly international. Whilst the centre of gravity remains London, Scotland, Hong Kong and most of all Nigeria are also large bases for membership. We have members in 39 countries, showing the progress in the geographical diversity of the Institute.

It is interesting to note that the membership of the IOR’s Linked In group is over 1000, which shows the latent interest among practitioners in building their understanding and in discussing professional points of interest.

It gives me great pleasure to report the establishment of a Chapter in Nigeria. Following presentations Mike Finlay and I did to an operational risk conference in Lagos, organised by Member Olaniyi Olelemi. A number of practitioners put themselves forward as interested in a chapter and it was formally recognised by Council after a further conference in April 2011. There have been two more events and the Chapter’s theme for events this year is Upskilling Operational Risk Managers in Nigeria. The Chapter is led by Edima Ben Ekpo with a committee of Olaniyi Olalemi, Chika Nwachukwu, Eneni Oduwole, Samuel Ekenem, Esther Ekpe, Akinola Odedina and Aniefon Omorogieva. The Institute has a high membership level in Nigeria.

In Scotland, four Scottish Chapter events have been held since April 2010. This includes the Chapter’s First Annual conference, a one day event available to many operational risk practitioners and held in October last year. There has been a very active organising committee there including Brian Rowlands, Allan Barr and Katie Cowan, with Caroline Tinsley doing a huge amount to lead and coordinate it all, and do much of the organisation.

The Far East Chapter continues to grow and thrive. After the inaugural ceremony in June 2010 it ran four events in partnership with other professional bodies through to end March 2011. Since then .the pace has continued, with 3 further IOR events for members, and with members being invited to three other events held in partnership with other academic and professional bodies.

At the same time, Dominic Wu, leader of the Chapter in the Far East, has answered invitations to lecture students at the prestigious Hong Kong University of Science and Technology in a series of seminars, and tospeak at the Annual Conference of the Hong Kong Institute of Bankers.

Our thanks must go to Dominic for his leadership there, and also to Sue Pang, William Tang, Jacky Leung, Sondra Park, Johnny Lee, Wing Cheng, Raymond Poon, Benjamin So, Liza Ching, Iris Lo, Alvina Diu and Ellen Chau.

The Team in Hong Kong have also become more involved in Institute affairs and our thanks go to in particular to Sue Peng has joined the panel of appraisers of membership applications, and has prepared an issue of the Newsletter.

The Chapter in Germany continues to progress, with three conferences and workshops there since its inauguration in early 2011. The next will take place on 10 May. We are grateful to Walter Dutschke for his work in putting the Chapter on solid ground with support from Dr Gerrit-Jan ven den Brink, Prof Dr Thomas Kaiser, Joachim Pfeifer and Bodo Schmidt.

In London, the programme of seminars is re-establishing its normal frequency of four day events in the year, or equivalent. In 2011 there were three such events, and this year one has already been held. Another is due on 24th May and the programme is planned beyond that. We are grateful to John Chapman f  or the work he has done on this, and to Mike Laird who has taken on the leadership.

The highly successful series of Sound Practice Guidelines continued to expand. New papers were produced on Risk Categorisation and on Operational Risk External Loss Events. The contributors who worked on them were Brian Rowland, Simon Ashby, Katie Cowan, Lisa Lucchesi, John Winter, Penny Cagan, Jonathan Howitt, Roger Stockdale. This makes a total of six papers, which have been much in demand on our website. Four of them have had over 100,000 hits since we put a count on them. It is clear that through this alone the Institute is fulfilling its mission of raising standards in the discipline.

The Sound Practice Team, earlier led by Richard Baker and now Brian Rowlands, is currently working on a new Guideline, namely Stress Testing and Scenario Analysis, and a review / update of the Risk Appetite paper first published in December 2009.

These papers provide a fine occasion for the IOR to be featured in the professional press. Coverage was achieved for both the recent papers. I am pleased to say that the IOR is approached by the risk press to comment on events, and we seek to get publicity for the Institute on our own initiative as well.

One such occasion arose from our Annual Lecture in February. The Institute was fortunate to have an address by Lord Malloch Brown. Chairman of the EMEA division of international consultancy FTI, he has been Deputy Secretary General of the United Nations and a UK government Minister. His speech about the political and economic risks facing us, locally and internationally, was very informative.

I’d like to mention a major piece of research-based work that three of our members prepared for the prestigious Cass Capco series on Risk Management. This was written by Simon Ashby, David Clark and John Thirlwell. It will be presented at the 5th Cass Capco Seminar in April and be included in the next edition of Cass Capco Risk Management papers.

Another member, Alan Peachey, has updated his “Great Financial Disasters of our Time.” This is an exceptionally well researched case book of major losses and helps one to demonstrate that it is hard to claim major losses “couldn’t happen here!”

These activities could not take place without a good infrastructure to the IOR. Last Spring however we were advised that the firm who had been undertaking the administration for us wished to cancel the contract following its acquisition by a very large firm and a re-focusing of its priorities. After consideration of alternative organisations to take over the work, Not For Profit Business Services was selected and contracted. It is led by Paul Neale, who is with us tonight. The transition from one firm to the new one took place in October last year and we hope members did not experience any special difficulties in changing over. We are pleased to be working with Paul’s firm. I’m grateful to Alan Dunk and Asim Balouch for all their work in selecting the firm and makng all thr arrnagements.

The other key piece of Infrastructure is the website and our emailing capability. The website is continuously updated to include the latest news. The previously mentioned Linked In website is important too. This activity is led by Michael Faber, supported by Pravinder Arora. We are grateful to them for this work, and I know they are always keen to get new materials and topics for both the website and the Linked In page. .

As the Treasurer has touched on the Finances on a running costs basis are in balance, but with little slack. The website and the office services we purchase make a large demand on us. Costs have been constrained in the past year as a precaution against weakness in membership numbers. Council also resolved to ensure resilience of the Institute by having a £19,000 reserve.

The Institute’s audit committee has undertaken a substantial review. It has made a number of recommendations. These include ensuring that there is a full and up to date set of Terms of Reference for the bodies in the Institute, and to review the strategy of the IOR, last set in 2010. The committee comprised Simon Ashby, Rubina Faber, who made a particularly notable contribution to the Audit, and Yema Tucker and I am very grateful for their work.

A key part of the IOR’s services to members is to provide pointers to them about conferences and courses worthy of our support. Daniel Golding, with colleagues David Breden and Roger Stockdale, have endorsed 15 events since April 2011 and supported a further 3 events. Preferential terms were received for members for all events which included either a discount of up to 25% and/or a free delegate place.

The Institute has continued to look at courses in Operational Risk Management and accredit the best. In 2011 the MSc course that Glasgow Caledonian was assessed and approved, following one at the University of East London. Assessment of these academic courses takes a lot of work, and Simon Ashby with Roger Stockdale and Rodney Young have been generous with their time. Jeremy Quick has been a guiding force of this valuable activity.

We will be electing new Directors to the Council of the Institute. I want to place on record our thanks to those who are retiring by normal rotation or who have resigned because of pressure of work. They are Simon Wheatley, Yema Tucker and Jeremy Quick.

Simon has been a voice of practical sense on the Council. From the point of view of the Council it is unfortunate that Simon’s work has not only grown because of merger activity by his firm, but that he has also had to do a lot more overseas travelling as a consequence. We are grateful to Simon for his service.

Yema has made a huge contribution to the Institute, in particular in the most difficult years when it was shifting to a small group in which nearly everyone knew everyone else, to being a much larger activity. Yema put in place the processes we needed especially around membership, and acted as secretary to the Executive Committee for a long time. We are grateful for all Yema has done.

Jeremy has been a great supporter of the Institute, including being a moving force of its antecedent, the Operational Risk Research Forum which first got discussion going about this new thing called Operational Risk. He has strongly believed in the development of the discipline at the personal and institutional level. His work in recent years on the accreditation of courses has been notable and I am pleased that he will be continuing to give his time to this. His wisdom and advice on Council has been invaluable.

Finally I must thank the members of the Executive Committee and workstream leaders for their contribution to the IOR in the year under review. Chaired by Asim Balouch the members are Michael Faber, Ron Cox, Stephen Murgatroyd, John Chapman, Mike Laird, Alan Dunk and Trevor Bedeman.

So the Institute continues to promote the discipline of operational risk with membership solid, and we hope applications will accelerate again. The Council is grateful for the support of all members, and I would like to assure all that it is the firm intention of myself, the Council and the Executive Committee to provide a unique service to members.

Edward Sankey

27/3/12

This does highlight that regulatory requirements are required to build the profile of the function, however, would like to have the opinion of fellow practitioners on how far such regulatory guidelines are required, will this help?

Primary guest speakers for the day included Andrew Sheen from the FSA, Tony Blunden from Chase Coopers, with additional specialist areas of expertise coming from Ken Aiken and Roger Miles.

The overall programme for the day varied between plenary sessions and smaller break-out sessions which focussed on specialised areas such as Loss Data Collection, Scenario Analysis, KRIs and Financial Crime.

Caroline Tinsley (secretary to the Scottish Chapter) acted as Chair for the day.

The paper describes all the elements required for effective external loss events and their use in the operational risk management framework.  The paper looks in detail at the elements of external loss events, uses of external events and its use in operational risk capital modelling.

When an organisation looks only within its own four walls, or restricts its view to the closest identified peer organisations, it manages risk without using peripheral vision. As a result, it may fail to identify and address potentially catastrophic risks. The old position that “it can’t happen here” seems more redundant than ever given events over recent years. Many organisations were probably overlooking a rich source information that in the past was dismissed as not relevant. Increasingly external loss events are seen as important contributors to the operational risk framework, especially scenario analysis and risk and control assessment (RCSA).