Barclays 2007 Annual Report Download - page 112

Risk management
Operational risk management
110 Barclays PLC Annual Report 2007
across the Group. The KRSs are validated at business unit and at Group
level to ensure that they appropriately reflect the level of operational risk.
It is these that are the main input to our capital model.
Operational risk capital is allocated, on a risk sensitive basis, to business
units in the form of economic capital charges, providing an incentive to
manage these risks within appetite levels.
Operational Risk Events
A high proportion of Barclays operational risk events have a low financial
cost associated with them and a very small proportion of operational risk
events have a material impact. Figure 1 shows that in 2007, 79% of
reported operational loss events had a value of £50,000 or less. Figure 2
shows that this 79% of risk events by count only amounted to 15% of risk
events by value. In contrast, 2% of the operational risk events had a value
of £1m or greater but accounted for 50% of the overall loss. This was
consistent with 2006 risk events and, from our analysis of external data,
is in line with industry experience.
Analysis of Barclays operational risk events in 2007 by Basel II category, as
shown in figure 3, highlights that the highest frequency of events occurred
in External Fraud (54%) and Execution, Delivery and Process Management
(37%). These two areas also accounted for the majority of losses by value
(figure 4), with Execution, Delivery and Process Management accounting
for 52% of total operational risk losses and External Fraud accounting for
24%. This again was consistent with 2006 internal risk events and, from
our analysis of external data, is in line with industry experience.
Barclays has been granted a waiver by the UK FSA to apply an Advanced
Measurement Approach (AMA) for Group-wide consolidated and solus
regulatory capital reporting. Barclays has applied the AMA Group-wide.
The two areas where roll-out of AMA is still continuing are Banco Austral
(Mozambique) and National Bank of Commerce Limited (Tanzania),
where the Standardised Approach is currently applied. In certain joint
ventures and associates, Barclays may not be able to apply the Advanced
Operational Risk Framework. Barclays does not currently use insurance
or expected losses to offset its regulatory capital requirement.
% of 07 loss
events (count)
% of 06 loss
events (count)
82
79
£10k-£50k
14
16
£50k-£250k
3
3
£250k-£1m
1
2
£1m+
Fig. 1: Operational risk events > £10k – % of total risk events by count
06 07
1 £10k-£50k
2 £50k-£250k
3 £250k-£1m
4 £1m+
Fig. 2: Operational risk events > £10k – % of total by value
4
1
2
3
4
1
2
3
06 07
1 Business Disruptions
and System Failures
2 Clients, Products and
Business Practices
3 Execution, Delivery and
Process Management
4 Employment Practices
and Workplace Safety
and Damage to
Physical Assets
5 External Fraud
6 Internal Fraud
Fig. 4: Operational risk events by category – % of total by value
12
4
5
1
2
3
4
5
66
3
Clients, products
and business
practices
Damage to
physical assets
Employment
practices and
workplace safety
Execution,
delivery and
process
management
External fraud
Business
disruptions and
system failures
Fig. 3: Operational risk events by risk category – % of total risk events by count
0.4
37
54
4
3
0.3 0.3
1
32
59
3
3
1 1
Internal fraud
% of 06 loss
events (count)
% of 07 loss
events (count)