Home +44 (0) 20 3795 2330 info@promethion.co.uk
Home Financial Strategy Fintech & Emerging Technologies Business Processes Team Case Studies

Promethion Limited

20 St. Dunstan's Hill

London EC3R 8HL

+44 (0) 20 3795 2330

© Promethion Ltd 2024

European bank - review of the fixed income portfolio and reconfiguration of the front, middle and back office to reduce operational risk.

Solution

Promethion reviewed various asset backed and CDO investments held by the group through its conduits and its investment book.

A detailed review of internal models employed in the asset backed securities unit was conducted to ensure these were in line with market conventions.

Once this review was complete, the portfolio positions were assessed to establish if provisioning levels were appropriate.

Promethion reviewed regulatory issues and compliance in relation to the business.

The final report recommended the creation of a new function, liaising between the front office and support, reporting to the COO, to ensure that the operational risks were effectively contained and an appropriate reporting structure put in place.

Financial Impact

The client had significant exposures totalling several billion $ spread across a range of investment and trading portfolios.

Some residual risk was retained in transactions distributed to end investors.

In addition to the market risks, the key area of risk reduction was operational and reputation risk resulting from poor coordination between separate front office units and the support functions.

Operational risk was conservatively estimated as high as $17 million whilst reputation and regulatory risk for a leading bank could be considerably higher.

The new position produced a positive contribution to revenue through improved management reporting, control and risk reduction at a modest ratio to potential exposures.


Problem

The Chief Operating Officer and members of the senior management team had identified operational risk arising from a poorly configured relationship between the front office businesses and the infrastructure (risk, legal and compliance, finance, operations and middle office) and market risk issues relating to the models employed within the proprietary investment portfolios.

Promethion was appointed by the Chief Operating Officer to address the risk management procedures in the Structured Credit Business and review the relationship between the various support functions and the front office.

The review was conducted against a background of distress and turbulence in the structured credit market.