Control environment en incidenten bij Financiële instellingen

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Krista Moens
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1 Control environment en incidenten bij Financiële instellingen Round Table Charco & Dique 6 februari 2014 Jaap van Dijk 1

2 Ter keuze aan de deelnemers: Presentatie doorlopen en korte Q&A / discussie Gelijk naar de laatste slide en na korte inleiding alleen maar Q&A / discussie 2

3 Finance & Control in the Financial Services Industry is Risk (y) Business By Jaap van Dijk CFO / CRO SNS Property Finance 2 December 2008

4 Finance & Control in the Financial Service Industry is a Risk(y) Business Evolution of Risk Management within SNS Property Finance The role of risk models (and the importance of a solid datawarehouse) Independent position of Risk Management Position of the Finance function next to Risk Management (or... IFRS next to Basel II) Who is primary responsible for F&C and RM in the Board of Management? Conclusions 4

Independent position of Risk Management Position of the Finance function next to Risk Management (or.

5 The evolution of Risk Management within SNS Property Finance 1989: Dutch communities founded Bouwfonds as a property developer and finance vehicle 2000: ABN AMRO acquired Bouwfonds (no risk function yet) 2003: building up a risk management function (2003; 3 fte, 2004; 4 fte, 2005; 11 fte, 2006; 13 fte, 2007; 16 fte and fte) 2006: SNS Reaal acquired Bouwfonds Property Finance, the financing subsidiary of Bouwfonds : strengthen the risk organisation, qualify for IRB foundation in assessing credit risks Key organisation characteristics: risk managers in the business for individual credit analysis (15 fte) and at corporate level for risk policies and portfolio analysis (5 fte) 5

Reaal acquired Bouwfonds Property Finance, the financing subsidiary of Bouwfonds 2007 2008: strengthen the risk organisation, qualify for IRB foundation in assessing credit

6 Risk Management has an independent governance position CFO SNS Bank, chairman of the SNS PF Credit Risk Committee Board of Management SNSPF Credit Committee CEO Chief BU NL Chief BU Int CFO Corp. RM F&CD Business Unit Business RM Business Unit Business RM functional hierarchic 6

SNSPF Credit Committee CEO Chief BU NL Chief BU Int CFO Corp.

7 The Risk Culture at most companies In most organizations the identification and management of risk is highly fragmented, so the board and the CEO find it hard to engage in a meaningful and informed analysis; the CEO usualy ends up relying on his or her gut instinct Seeks strategic dialogue about risk but must rely on intuition Board CEO Lacks knowledge and risk vocabulary to engage in dialogue with management Understands the risks but has little influence on decision making CRO CFO Has narrow and siloed view of risk, often focusing on compliance Treasurer s office Business Unit Business Unit Business Unit Uses sophisticated management tools, but only for short-term risk Lack the sophistication to understand, much less measure, their own risks Buelher, K., Freeman, A. & Hulme, R. (2008). Owning the right risks. Harvard Business review (september),

with management Understands the risks but has little influence on decision making CRO CFO Has narrow and siloed view of risk, often focusing on compliance Treasurer s office Business Unit Business

8 The analist s views Traditionally we report our portfolio size to measure our growth, the analists focus on the Risk Weighted Assets and determine criteria against these RWA SNSPF mid 2008: Portfolio outstanding 13 bln versus reported RWA of 11,6 bln; criterium is (xy) bps loan loss charge versus RWA 8

criteria against these RWA SNSPF mid 2008: Portfolio outstanding 13 bln

9 Teaming of Finance and Risk Accounting for the past and manage the future Report on last years result but also on the development of embedded value Account for risk appetite and the cost of capital associated with the risk profile ( e.g. in annual reports) Or: promote managing on sustainable profits rather than short term results 9

10 Who is (or should be) responsible for F&C and RM within a Board? Multiple choice (please discuss): a) The CFO for both functions b) The CFO for F&C and a CRO for RM c) The CRO for both functions d) The CEO for both functions e) There is no organisation template, it depends on the quality of leadership 10

for F&C and a CRO for RM c) The CRO for both functions d) The CEO for both

11 What does CRO actually stand for? Multiple choice (please discuss): a) Chief Risk Officer b) Chief Reward Officer c) Chief Risk/Reward Officer d) Chief Raspoetin Officer 11

12 Conclusions For financial institutions with a sound risk management practise and well tuned F&C and RM -departments there are no bad risks, just bad prices (and this is true for any company) Risks that you can not properly assess (i.e. do not understand), you just do not accept Management reportings as well as external reportings mix accounting for results with accounting for the risk profile; it is up to the F&C departments to live up to this new reality 12

(i.e. do not understand), you just do not accept Management reportings as well as external reportings mix

13 Risicomanagement in tijden van crisis (en voor en na) Leen Paape e.a. november 2009 De oorzaak van de crisis ligt in de basis in de VS: afgelopen decennium geen reële welvaartsgroei, want economische groei ging gepaard met forse stijging schulden. Te weinig besef van de prijs van risico; waardoor de Madoff s van deze wereld de ruimte kregen De financiële sector is te groot geworden (van 4% van GDP naar 8%; op het hoogtepunt kwam 46% van de earnings van de financiële sector) September 2008 Balkenende/Bos/Wellink: wat daar (VS) was gebeurd, kon hier niet gebeuren. De Nederlandse economie stond er goed voor, was in goede handen en zou de slechte omstandigheden doorstaan En kort daarna moest aan bijna alle grote financiële instellingen staatssteun worden verleend 13

de earnings van de financiële sector) September 2008 Balkenende/Bos/Wellink: wat daar (VS) was gebeurd, kon hier niet gebeuren.

14 Risicomanagement in tijden van crisis (2) Er zijn geen onafhankelijke, deskundige, schone handen meer om de oorzaken vast te stellen c.q. de schuldigen / zondaars aan te wijzen. De usual suspects: a) de rating agencies b) de toezichthouders en c) de media Het zijn risicomanagers, risicomanagementconsultants en andere gebakken lucht verkopers die de zeepbel verder hebben helpen opblazen en daarmee mede aan de basis lagen van de toenemende tolerantie voor en zin in het nemen van meer en meer risico door investeringsbanken 14

De usual suspects: a) de rating agencies b) de toezichthouders en c) de media Het zijn risicomanagers, risicomanagementconsultants

15 Risicomanagement in tijden van crisis (3) Antwoord na de savings & loancrisis in de 80-er jaren: COSO I (In Control framework). Later in COSO II nam risicomanagement een centralere rol in. Risicomanagement: kwantitatief kreeg de overhand, bood meeste zicht op capital relief (advanced measurement approach Basel II) Paape cs: organisaties bestaan uit eilanden / silo s, de kunst is de juiste mensen en disciplines bij elkaar te brengen om overeenstemming te krijgen over paradigma s en uitgangspunten (voorbeeld : risk appetite, wat is een acceptabel risico?). Het gaat meer om mensen dan om modellen 15

Risicomanagement: kwantitatief kreeg de overhand, bood meeste zicht op capital relief (advanced measurement approach Basel II) Paape cs: organisaties

16 Risicomanagement in tijden van crisis (4) Gary Neil, Confessions of a riskmanager, The Economist, 7 augustus 2008: The pressure on the risk department to keep up and approve transactions was immense.at the root of it all, was and still is- a deeply ingrained flaw in the decision making process. In contrast to the law, where two sides make an equaland opposite argument that is fairly judged, in banks there is always a bias to one side of the argument. The business line was more focused on getting a transaction approved than on identifying the risks in what is was proposing. The risk factors were a small part of the presentation and always mitigated. This made it hard to discourage transactions. If a risk manager said no, he was immediately on a collision course with the business line. The risk thinking therefore leaned towards giving the benefit of doubt to the risk takers. Nouriel Roubini, The Crisis and how to deal with it, The New York Review of Books, 11 juni 2009: We relied on internal risk management models, but nobody listened to risk managers when the risk takers were making all the profits in the banks. 16

In contrast to the law, where two sides make an equaland opposite argument that is fairly judged, in banks there is always a bias to one side of the argument.

17 Thema s / dilemma s Zorgvuldigheid versus buikgevoel Vertrouwen controle Kwantitatief kwalitatief Transparantie vertrouwelijkheid Volledigheid - relevantie van info (de bomen en het bos) Korte termijn lange termijn doelstellingen Macht gezag Verantwoordelijkheid aansprakelijkheid Angst durf Governance leiderschap Substance - Form Gedragsregels - cultuur Jack Welch: the system always beats you Jan Hommen: it takes two to hire and one to fire Emiel van Lennep: de goede inspecteur (van Financiën, vgl. riskmanager) is niet degene die het beste nee kan roepen, maar die op de juiste momenten ja zegt 17

Governance leiderschap Substance - Form Gedragsregels - cultuur Jack Welch: the system always beats you Jan Hommen: it takes two to hire and one to

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