Basel II Operational risk - best practices

What is Operational Risk ?

The Basel II accord on banking supervision defined operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Legal risk would be included in this definition according to the Basel committee, but not strategic or reputational risk

Operational Risk Failures

Internal Fraud - Losses due to acts of a type intended to defraud, misappropriate property or  circumvent regulations, the law or company policy, excluding diversity/ discrimination events,
which involves at least one internal party.

External Fraud - Losses due to acts of a type intended to defraud, misappropriate property or circumvent the law, by a third party

Employment Practices and Workplace Safety - Losses due to acts of a type intended to defraud,
misappropriate property or circumvent the law, by a third party.

Clients, Products and Business Practices - Losses arising from an unintentional or negligent failure to
meet a professional obligation to specific clients (including fiduciary and suitability requirements), or from the nature or design of a product.

Damage to Physical Assets - Losses arising from loss or damage to physical assets from natural disaster or other events

Business Disruption and System Failures - Losses arising from disruption of business or system failures

Execution, Delivery and Process Management - Losses from failed transaction processing or process
management, from relations with trade counter parties and vendors


5 Best Practices to Follow in Operational Risk Management

1. Develop, Implement and Maintain a Framework for Operational Risk Management
2. Design the Right Operational Risk Governance Structure
3. Use Right Tools to Identify and Assess All Operational Risks
4. Implement an Approval Process for New Products and Processes that Assesses Operational Risks
5. Maintain a Robust Operational Risk Reporting Mechanism

A detailed Whitepaper on this subject available Here

Complying With FLSA Requirements

The Fair Labor Standards Act (FLSA) of 1938 is key piece of compensation legislation. Although FLSA has been around for a long time, it is the most frequently violated employment law.  Employers misclassify employees as exempt or fail to calculate working time accurately. Misclassifications can result in severe back pay issues. Calculating overtime incorrectly can often result in overpayments or underpayments. Violations can not only hurt companies financially, but damage reputations as well.

FLSA cases have hit a new record high and continue to rise. A record breaking 8,126 FLSA suits were filed in federal courts in the last year. All in all, there has been an increase of over 400% since the year 2000. Employers have to be conversant with the intricacies of the law to avoid lawsuits. This white paper discusses what FLSA, its requirements and common FLSA pitfalls too avoid.

<<CLICK HERE>>

Virtual currencies, gold, money laundering, regulations etc

Now EU is mulling ban on virtual currencies and particularly bit coins as it seems there are more chances of irregularities which might happen and antisocial elements can use this route to beat the current regulations.

“It’s imperative to move quickly on this issue,” Chantal Hughes, a spokeswoman for Financial Services Commissioner Michel Barnier, said . “The potential for money laundering and terrorist financing is too serious to ignore.”

The Commission, the EU’s executive arm, moved after the European Banking Authority said banks shouldn’t buy, hold or sell virtual currencies until regulators develop safeguards to protect their integrity. The watchdog identified more than 70 risks linked to the currencies ranging from identity theft to the possibility hackers could target a trading platform.

Now coming back to the early days of gold as currency, it was a well thought method adopted by all the ancient civilizations and till now also countries measure it as a symbol of richness and well being of nations. We advance in terms of technology use it and then at some point of time this becomes a necessity and we can not get away from it so it is welcome move , before bitcoins become necessity like credit cards, and becomes an wide spread phenomena, we need to regulate and then wait and watch if it can be good. particularly after the Mt. Gox disaster once the world’s biggest Bitcoin exchange, filed for bankruptcy in Japan earlier this year amid claims it lost 850,000 Bitcoins. China’s central bank barred financial firms from handling virtual currency transactions last year.

There are many AML regulations across the globe but still it happens and people find ways to do it.  So it is time will tell we might go back to some mechanism where the real money can be how much gold you have or in other form which you can convert in to gold.

If we observe closely many countries are driven by the thought of spending today because people can ear tomorrow vs earn today so that you can spend tomorrow. Interestingly US dollar is a credit instrument so if you submit to US gov, govt will not give you anything but Indian currency if you submit you will get same amount of gold. Many countries keep on spending so that they can earn tomorrow but when are not able to control then file for bankruptcy which is not good for world economics.

Dos and Don'ts of responding to Unsoliciated offlabel requests

• Be specific, truthful, unbiased and scientific
• Avoid Public responses
• Keep private response specific to the question
• Make sure the persons responding on behalf of you are medical or scientific personnel
• Make sure sales and marketing personnel are not involved at all even in training and awareness
• Makes sure you are keeping record of all the responses.

Interesting facts

Q  - Is News release about an investigator-lead IND study an off-label promotion?

Ans - Yes and No both. If it is just facts then it is no. But if it contains what you wanted to do with it and what is the derivative product out of it then yes.

Q - Sales people re-twitting a posting about benefits of the product off-label promotion or not ?

Ans - Yes, it should be discouraged.

Q - A consumer forum posting saying negative about our product. What is best way to respond?
Ans - do not necessarily have to respond but if you wanted to respond be more detailed.

Q - Is it ok to post clinical trial information on new uses of our product on clinicaltrials.gov?

Ans - Yes you should. Post on protocols etc and anything important for your products.

The Bank Secrecy Act – What It Enforces ? Best Practices how to comply ?

In 1970, the Currency and Foreign Transactions Reporting Act was passed by US Congress. It is commonly known as the Bank Secrecy Act or BSA. The Act requires US financial institutions to assist US government agencies in detecting and preventing money laundering.

Specifically, the BSA requires financial institutions to:

·         Keep records of cash purchases of negotiable instruments,

·         File reports of cash transactions exceeding $10,000 (daily aggregate amount), and

·         Report suspicious activity that might signify money laundering, tax evasion, or other criminal activities

The BSA requires financial institutions to have a written, board-approved compliance monitoring program. The program must:

-          Provide for a system of internal controls to assure ongoing compliance;

-          Provide for independent testing for compliance;

-          Designate an individual responsible for coordinating and monitoring day-to-day compliance; and

-          Provide training for appropriate personnel.

In addition, the implementing regulation for section 326 of the PATRIOT Act requires that every bank adopt a customer identification program identification program as part of its BSA compliance program.

Reporting Requirements under the BSA

The BSA includes the following reporting requirements (these are administered by the US Department of Treasury's Financial Crimes Enforcement Network (FinCEN)):

-          FinCEN Form 104 - Currency Transaction Report (CTR)

-          FinCEN Form 105 - Report of International Transportation of Currency or Monetary Instruments (CMIR)

-          Treasury Department Form 90.22.1 - Report of Foreign Bank and Financial Accounts (FBAR)

-          Suspicious Activity Report (SAR)

-          Designation of Exempt Person Form


6 Best Practices for Complying with the BSA’s Suspicious Activity Reports Requirement

1. Implement a Proper Monitoring and Reporting System
2. Use the Appropriate Method to Identify Unusual Activity
3. Identify the Underlying Crime
4. Document the SAR Decision Making Process
5. Submit Forms that Are Thorough and Complete
6. Ensure Reports Are Filed within the Required Time Period