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Twelve banks join Acin operational risk management platform

Twelve major investment banks have signed up to a recently launched operational risk management platform run by regtech firm Acin.

The start-up, which was launched earlier this year by former bankers for “taking risk and controls management to a higher level” said that the dozen tier-one banks that are forming the Acin Operational Risk Defence Network Model include Credit Suisse, Standard Chartered and Société Générale. Acin aims to increase membership to 20 by the end of the year.

Acin’s chief executive, Paul Ford, said, “We are delighted to welcome Credit Suisse, Standard Chartered Bank and SG to the Acin network, to a growing network of firms who work together to enhance their risk and control environments.”

At the time of its launch, Acin announced: “Uncatalogued risks continue to appear, resulting in increased fines from the regulators,”. “The controls are not under control, and it’s costing firms billions every year. Acutely aware that this money could be better employed elsewhere, the banks are under mounting pressure to resolve this issue.”

Nick Lovett, managing director and global markets controls officer at Credit Suisse said his bank “continually drives to enhance its controls operating model and is pleased to participate in an initiative to verify its controls inventory against its peers and others in the market.

“The drive to standardise control definitions and processes across the industry will only enhance individual operating models and assist in the identification of real-time issues and incidents. We have been using Acin for the last few months and clearly see the benefits.”

A growing cost

Operational risk covers any cost incurred by a company as a result of employee or system error, including rogue trades. Since the 2008 financial crisis, banks have been required to hold larger amounts of regulatory capital to cover unexpected bills resulting from such events and Acin estimates it costs larger banks around US$100m a year on average.

Ford, a former chief operating officer of Barclays’ wealth management division, says that Acin’s platform aims to help banks develop a common set of definitions and methodologies and adopt a more unified approach when tackling operational risk. “Banks were not comparing apples with apples in order to identify risks. “But the reality is that they need to compare Cox’s apples with Cox’s apples.”

He adds that Acin is taking a “quantitative approach to a previously qualitative process” by standardising the definitions of banks’ operational risk controls.

Although Acin has not confirmed if JP Morgan is among its other nine members, its approach is likely to find favour with the bank’s chief executive, Jamie Dimon, who has criticised the need to tie up substantial amounts in risk capital that could be more profitably used.

Writing to shareholders in April this year, Dimon estimated that JP Morgan has about US$400 billion in operational risk-weighted assets on its books, against which it is required to keep a buffer.

He called for current operational risk calculations to be “significantly modified, if not eliminated” and added that “tying up capital in perpetuity – looking for shadows on the wall – is probably not the best idea for fostering growth in America.”

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