Barclays 2009 Annual Report Download - page 136

134 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
Risk management
Operational risk management
continued
By combining internal data, including internal loss experience, risk and
control assessments, key indicators and audit findings, with external loss
data and expert management judgement, Barclays is able to generate
Key Risk Scenarios (KRSs), which identify the most significant operational
risks 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.
These are the main input to our capital model. Distributions of the potential
frequency and severity of operational risk losses are calculated and
aggregated to provide a distribution of potential losses over a year for
Barclays as a whole. The aggregation process takes into account potential
correlations between risk events. The regulatory capital requirement is
determined to a soundness standard of 99.9% confidence. Operational risk
capital is allocated, on a risk sensitive basis, to business units, 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. In 2009, 73.3% of reported operational losses had
a value of £50,000 or less (2008: 72.8%) but accounted for 3.4% of the
overall impact (2008: 7.8%). In contrast, 4% of the operational risk events
had a value of £1m or greater (2008: 2%) but accounted for 87% of the
overall impact (2008: 66%).
The Group monitors trends in operational losses by size, business unit
and internal risk categories (including Principal Risk). For comparative
purposes, the analysis below presents Barclays operational risk events by
Basel II category. In 2009, the highest frequency of events occurred in
Execution, Delivery and Process Management (45.3%) and External Fraud
(35.8%). These two areas also accounted for the majority of losses by value,
with Execution, Delivery and Process Management comprising 50.5% of
total operational risk losses and External Fraud making up a further 38.1%.
The growth in impact of external fraud year on year was caused by stressed
market conditions which have brought to light fraudulent activity by a
number of clients.
3.0
0.5
8.5
3.3
0.8
0.7
0.0
0.1
79.0
50.5
38.1
9.2
4.7
1.7
Business
disruptions and
system failures
Clients, products
and business
practices
Damage to
physical assets
Employment
practices and
workplace safety
Execution, delivery
and process
management
External fraud
Internal fraud
— % of 08 loss
events (value)
— % of 09 loss
events (value)
Fig. 2: Operational risk events by category
% of total by value
Fig. 1: Operational risk events by risk category
% of total risk events by count
3.0
4.5
1.6
1.9
3.2
3.0
0.2
0.3
42.7
45.3
35.8
42.4
6.6
9.5
Business
disruptions and
system failures
Clients, products
and business
practices
Damage to
physical assets
Employment
practices and
workplace safety
Execution, delivery
and process
management
External fraud
Internal fraud
— % of 08 loss
events (count)
— % of 09 loss
events (count)