Freddie Mac 2015 Annual Report Download - page 190

Risk Factors Operational Risks
Freddie Mac 2015 Form 10-K 188
OPERATIONAL RISKS
A failure in our operational systems or infrastructure, or those of third parties, could impair our
liquidity, disrupt our business, damage our reputation, and cause losses.
We face significant levels of operational risk due to a variety of factors, including the complexity of our
business operations and the amount of change to our core systems required to keep pace with regulatory
and other requirements.
Shortcomings or failures in our internal processes, people or systems could lead to impairment of our
liquidity, financial and economic loss, errors in our financial statements, disruption of our business, liability
to customers, further legislative or regulatory intervention, or reputational damage. We have certain
systems that require manual support and intervention, which may lead to heightened risk of system
failures. Our business is highly dependent on our ability to process a large number of transactions on a
daily basis and manage and analyze significant amounts of information, much of which is provided by
third parties. The transactions we process are complex and are subject to various legal, accounting, and
regulatory standards. The types of transactions we process and the standards relating to those
transactions can change rapidly in response to external events, such as the implementation of
government-mandated programs and changes in market conditions. Our financial, accounting, data
processing, or other operating systems and facilities may fail to operate properly or become disabled,
adversely affecting our ability to process these transactions. Our systems may contain design flaws. The
information provided by third parties may be incorrect, or we may fail to properly manage or analyze it.
The inability of our systems to accommodate an increasing volume of transactions or new types of
transactions or products could constrain our ability to pursue new business initiatives or improve existing
business activities.
We also face increased operational risk due to the magnitude and complexity of the new initiatives we are
undertaking, including our efforts to help build a new housing finance system, such as the development of
the single (common) security and common securitization platform. Some of these initiatives require
significant changes to our operational systems. In some cases, the changes must be implemented within
a short period of time. The transition to the common securitization platform, which is currently scheduled
to begin in late 2016, presents significant operational and technological challenges. Our legacy systems
may also create increased operational risk for these new initiatives. Internal corporate reorganizations
(e.g., relating to our implementation of an enhanced three-lines-of-defense risk management framework)
may also increase our operational risk, particularly during the period of implementation.
Our employees could act improperly for their own or third-party gain and cause unexpected losses or
reputational damage. While we have processes and systems in place designed to prevent and detect
fraud, there can be no assurance that such processes and systems will be successful.
Most of our key business activities are conducted in our offices in Virginia and represent a concentrated
risk of people, technology, and facilities. As a result, an infrastructure disruption in the area of our offices
or affecting the power grid could significantly adversely affect our ability to conduct normal business
operations. A terrorist event or natural disaster in the area near our offices or affecting the power grid
could have a similar impact. Any measures we take to mitigate this risk may not be sufficient to respond to
the full range of events that may occur.