Barclays 2013 Annual Report Download - page 227

Risk review
Operational risk
Operational risk is defined as the risk of direct or indirect impacts resulting from human factors, inadequate
or failed internal processes and systems or external events.
All disclosures in this section (page 225) are unaudited
Operational risks are inherent in all the Group’s business activities and
are typical of any large enterprise. It is not cost effective to attempt to
eliminate all operational risks and in any event it would not be possible
to do so. Small losses from operational risks are expected to occur and
are accepted as part of the normal course of business. More material
losses are less frequent and the Group seeks to reduce the likelihood of
these in accordance with its risk appetite.
The Operational Principal Risk comprises the following Key Risks:
CyberSecurity, External Suppliers, Financial Reporting, Fraud,
Information, Legal, Payments, People, Premises and Security, Product,
Regulatory, Taxation, Technology and Transaction Operations. For
definitions of these key risks see page 415.
Operational risk profile
The Barclays operational risk profile in 2013 was dominated by further
charges of £1,350m (2012: £1,600m) for PPI and interest rate hedging
product redress of £650m (2012: £850m). In response to these and
other historical issues, and following publication of the Salz review,
work continues to enhance the internal control and risk management
framework (see the Risk Management section on page 416) with the
creation of a new Board-level committee charged with specific
oversight of operational and conduct risks, reputational matters and
the citizenship strategy.
Within operational risk a high proportion of risk events have a low
associated financial cost and a very small proportion of operational risk
events will have a material impact on the financial results of the Group.
In 2013 79.2% of the Group’s net reportable operational risk losses had
a value of £50,000 or less (2012: 74.7%) and accounted for only 1.8%
(2012: 1.3%) of the Group’s total net loss impact.
The analysis below presents Barclays operational risk events by Basel 2
category. There has been a slight reduction in the proportion of losses
by amount within the Clients, Products and Business Practices category
to 90.0% (2012: 92.2%), but this is still heavily impacted by provisions
for PPI and interest rate hedging product redress. Execution, Delivery
and Process Management impacts increased to 5.2% (2012: 3.7%).
These events are typical of the banking industry as a whole where high
volumes of transactions are processed on a daily basis. These are often
fully or partially recovered, resulting in low value net losses. External
Fraud with 63% (2012: 41%), is the category with the highest
frequency of events where high volume, low value events are also
consistent with industry experience, driven by debit and credit card
fraud.
The Group’s operational risk profile is informed by bottom-up risk
assessments undertaken by each business unit and top-down
qualitative review from the Operational Risk & Control Committee
(ORCC). External Fraud and Technology have been noted by the ORCC
as key operational risk exposures. External Fraud has increased driven
by the higher number of fraud events, particularly in credit card
portfolios, and business growth, whereas for Technology there is an
ongoing programme of work to improve controls, through efficiency
and automation, and a focus on infrastructure resilience. CyberSecurity
risk continues to be an area of attention given the increasing
sophistication and scope of potential cyber-attack. Risks to technology
and CyberSecurity change rapidly and require continued focus and
investment.
For further information see Risk Management section (pages 415
to 417).
2013
2012
2.0
1.9
5.8
4.9
2.3
3.2
0.0
0.3
24.3
46.0
63.0
40.8
2.7
2.8
Business disruption 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
Operational risk events by risk category
% of total risk events by count
2013
2012
0.2
0.2
90.0
92.2
0.1
0.1
0.0
0.1
5.2
3.7
3.5
3.6
1.1
0.1
Business disruption 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
Operational risk events by risk category
% of total risk events by value
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