OpenLink

Solutions

• STP Capital Markets
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• Global Front-Office
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• Global Market & Credit Risk Management
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• Global Back-Office
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• Global Operational Risk Management
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Market Focus

• Commercial/Investment Banks
• Central Banks
• Corporate Treasuries
• Asset Management Solution
• Other Entities

Global Operational Risk Management

In today's high-tech environment, where firms become more leveraged on people, processes and systems, businesses place a greater emphasis on managing internal risks. As a result, the importance of Operational Risk management (e.g. detection of Fraud, Money Laundering, Employee Error, System Error and similar events) is increasingly seen on par with Market Risk and Credit Risk management. Examples such as the Basel II Accord capital requirements, stakeholder losses resulting from stunning corporate collapses, and the compliance costs related to the Sarbanes-Oxley Act all illustrate the real effect that operational risk exposure can have on your bottom line. Risk managers know that losses arising from operational risk can match or even dwarf those arising from market and credit risk.

Unlike market and credit risk, greater operational risk is not tied to greater rewards - thus controlling operational risk arguably ranks as the most important aspect of a robust risk management framework. However, one can easily see why risk managers have traditionally made operational risk a secondary consideration given the broad nature of the problem, the subjectivity on which operational risk measures/controls typically rely, the difficulty in finding/aggregating data, and the qualitative nature of solutions such as scorecards. Now Findur's Operational Risk Solution provides a next generation framework to address these traditional shortcomings - analytics that provide quantitative metrics on operational risk exposure, a control framework to reduce these exposures and a robust architecture to incorporate the subjectivity from your operational experts inherent in this type of analysis.

No other Trading, Risk Management and Operations solution gives you such a tightly integrated operational risk framework. OpenLink's Global Operational Risk Management Solution brings operational risk management to the forefront and provides the analysis and controls that will assist in the management of high-risk events and highlight these exposures and associated costs to management.

OpenLink offers the first comprehensive operational risk management and control system fully integrated with our Trading, Risk Management and Operations solution. The Operational Risk Management Solutions provide all these features:

• Capital Calculation. Using your operational losses, a capital calculation methodology satisfying the Advanced Measurement Approach (AMA) proposed by the Basel Committee. The capital calculation will allow management to validate and assess capital charges for regulatory purposes and allocate them amongst business units



• Key Risk Indicators. Using a causal model, identify the key characteristics of transactions and processes that contribute to operational losses. This will allow management to take actions to reduce losses and to predict losses and capital requirements based on operational characteristics



• Anomaly Detection. Using a trained causal model, unusual or anomalous transactions will get flagged as exceptions. This will allow management to review and audit transactions that may indicate abnormal operations or transactions. Historically, causal models have been used extensively to detect fraudulent trading activity. We have integrated these advanced techniques into our transaction-processing platform



• Artificial Intelligence. As your business changes and grows, our operational risk tools "learn" your business. Minimize the risk that your pre-defined STP exception rules will always run a step behind because you based them on yesterday's business. Our smart rules will ensure identification of exceptions without a prior configuration of specific rules



• Insightful results and analysis. Because our models "know" basic relationships and constantly "learn" trading behavior, you can produce more interesting and useful results. Traditional regression models and other sophisticated techniques do not provide the ability to describe things we know while learning things we don't, and most suffer from "spurious correlations" and "Simpson's paradoxes," two chronic problems with traditional analysis in large systems. Our advanced methods highlight key relevant relationships and problems



• Stress-testing. You need the power to perform "what-if" analyses so vital to engineering internal processes that minimize the effects of operational failures. We will generate hypothetical transactions and process scenarios likely to result in operational failures and losses, so you can use these cases to stress test your transaction workflows.

Given the relatively recent emphasis on operational risk, a number of software vendors have emerged with different solutions. However, a number of vital features differentiate OpenLink:

• Many trading and operations solutions claim to offer operational risk control by allowing users to pre-define exception-based rules that trigger if a trade matches certain criteria. The problem with this "shotgun" approach is that the users hope they can define beforehand all the situations that will lead to operational failure. Given the complexity and broad scope of operational risk, it remains clearly impractical to fully define all possible exceptions, and eventually this becomes a reactive process. Our solution couples exception-based rule control processes with artificial intelligence tools to "learn" your business and identify transactions that fall outside of the normal pattern of trading and processing. This guarantees that your STP exception rules will automatically evolve and stay up-to-date as your business changes. Our smart rules ensures identification of exceptions without any presumptive configuration of specific rules



• Historically, operational risk has been difficult to quantify, so a variety of qualitative techniques such as scorecards, questionnaires, and scenario analysis have arisen. While it is essential that any solution provide the ability to incorporate the expert subjective opinions of the risk, audit and operations staff, many software solutions simply provide overwhelming qualitative data that remains left up to the user to interpret. The difficulty in quantifying operational risk leads to other issues: lack of transparency; inability to proactively identify real-time risks; ambiguity of how to implement controls; inability to measure improvement; and difficulty in setting performance benchmarks. OpenLink's Operational Risk Management Solution solves this traditional shortcoming with state-of-the-art analytics that quantify the problem with probability based anomaly scores, metrics for key risk indicator relevance and relationships, capital calculations and expected/unexpected loss estimates



• Many software products offer "bolted-on" solutions that simply aggregate data from other sources. As these products are not inherently part of the operational process, they provide measurement tools only, with no ability to influence or control the operational processes that give rise to operational risk. Because our Operational Risk Management Solution is fully integrated, you can use it with our STP Solutions or Global Back Office Solutions to implement controls and modify processes that minimize the likelihood of error or fraud. For example, trades do not fit the traditional trading pattern, a warning can be instantly broadcast to a risk manager, or the transaction workflow can be routed to a back office analyst for investigation prior to any other back office processing such as payments. You will find no other product that gives you such advanced measurement and control facilities

Global Operational Risk Management Solutions empower you to manage operational risk to the same degree of sophistication as credit and market risk using the first system with a fully integrated operational risk management and control framework. Global Operational Risk Management Solutions deliver the following list of unparalleled benefits:

• Improved profitability and service levels for operations. Through loss reduction and improved controls, operations become more efficient and demonstrate immediate results in better profitability and improved service levels



• Reduction of regulatory capital. Using internal loss data and advanced capital calculation capabilities, you can reduce the amount of capital held for regulatory purposes. If you operate unregulated, you can reduce your economic capital requirements and insurance premiums



• Assurance to stakeholders. By implementing a comprehensive operational risk regime that includes key operational risk management capabilities, you can provide a higher level of assurance to your stakeholders that you will have no vulnerability to "surprise" events stemming from operational risk

OpenLink provides next generation Operational Risk Management Solutions that no other trading, risk management or operational system can match. The potential applications of our solutions are as broad as the challenge of operational risk itself. The elusive piece of a comprehensive risk management framework has finally arrived!

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