Advanced Operations Management 2e

David Loader is Managing Director of the London based Derivatives and Securities Consultancy Ltd (DSC). DSC provides various consultancy and educational services to a wide range of financial institutions globally. David has over thirty years experience in the finance industry, particularly in operations, gained in a number of major organisations including SG Warburg Group where he was Operations Director. He is heavily involved in financial education and training, as a Director of Computer Based Learning Ltd (providing e-learning solutions to the financial services industry), and as an author and presenter of training courses for The Securities and Investment Institute. David is a member of The International Guild of Bankers, The Institute of Directors and The Securities and Investment Institute.

Preface xvii About the author xix 1 THE CHALLENGE 1 The profile of operations 2 Operations is a business 3 The challenge of change 5 The challenge of management style 7 The challenge of global markets 8 The challenge of personal goals 10 The challenge of dealing with events 10 2 THE MANAGEMENT PHILOSOPHY 13 Reporting lines 19 3 THE MANAGEMENT OF RISK 23 Market risk 26 Characteristics of the products used 27 Management risk 27 Inadequate procedures and controls 27 Information or reporting risk 28 Market or principal risk 28 Credit or counterparty risk 30 Operational risk 31 Means of reducing settlement risk 33 Personnel/HR risk 35 Liquidity risk 36 Systemic risk 37 Financial or treasury risk 38 Technology risk 39 Systems failures 39 Technology awareness 40 Legal risk 40 Regulatory risk 41 Reputation risk 42 Other risks 43 Malicious risk 43 Country risk 43 Understanding risk 45 Controlling risk 45 Strategic controls 46 Management responsibility 48 Role of risk management 49 The risk management process 50 Risk management departments 52 Staff training 55 4 SECURITIES FINANCING 57 What is securities financing? 58 Stock lending 59 Securities lending process flows 64 Loan initiation 65 Delivery of collateral and securities 65 Management of benefits and collateral 65 Return/recall of securities 66 Payment of fees 66 Lending agreement 67 Repurchase agreements (Repos) 67 Collateral 68 Securitisation 70 5 TREASURY AND FUNDING 71 Case study 75 Unsecured borrowing 80 Secured borrowing 81 Money market instruments 83 Derivatives 84 Foreign exchange 84 Treasury settlements 85 Cash management 86 Risk in treasury settlement 88 6 RESOURCE MANAGEMENT 91 Pressures on resource 92 Defining resource 96 Training and developing people 97 Contingency planning 98 Restructuring 101 Training and personal development 103 Succession planning 105 Dealing with people 107 The working environment 110 Managing systems 110 Technical performance 113 Operational performance 114 Difficult people 115 Motivation 117 No motivation means trouble is brewing 120 Performance measurement 120 Management of people 122 7 TECHNOLOGY IN OPERATIONS 127 Timing and resourcing 135 Loss of key personnel 137 Managing the operations function through the project 137 Post-implementation 141 Technology and the future 141 8 PROCEDURAL DOCUMENTATION CAPTURING THE KNOWLEDGE BASE 143 The historical perspective 144 The benefits of good documentation 145 What is good procedural documentation? 148 In-house or outsource? 150 1 Skill 150 2 Time 151 3 Cost 152 Maintaining, controlling and distributing the documentation 152 9 CLIENT MANAGEMENT 155 Customer relationships 157 The approach to customer relationships and the client culture 160 Know your client 164 General guide to account opening and customer identification 164 Money laundering 178 Defining the service and establishing relationships 178 What is considered as client service? 178 Establishing relationships 179 The manager s role in relationship management 180 Structure of the operations function 182 Responsibility 182 Measuring service levels 184 Escalation procedures 186 Client liaison programmes 187 Front-office client team 188 Industry issues 188 Training the team 189 Analysing competition 189 Developing the service 190 What are the potential problems in customer relationships? 191 Managing risk in the customer relationship 192 Client visits 194 10 MANAGEMENT INFORMATION 197 Information paths 200 Distribution 201 MI production 202 Sourcing data 203 Compilation and validation 204 Production of MI 204 Risks in MI 207 11 OUTSOURCING/INSOURCING OPERATIONS FUNCTIONS 211 Outsourcing 212 Regulation and outsourcing 214 Insourcing 223 12 INDUSTRY DEVELOPMENTS 225 Regulatory changes and T&C 231 Industry recommendation 232 Shortening settlement cycles 232 What else? 233 Bank for International Settlement 233 Securities Industry Association 234 Alternative Investment Management Association 235 International Swaps and Derivatives Association 235 International Securities Markets Association 236 GSCS benchmarks 237 Other industry organisations 237 Remote clearing 237 The G30 s 20 recommendations 239 Creating a strengthened, interoperable global network 239 Mitigating risk 240 Improving governance 241 Appendices A FATF DOCUMENTS ON THE FORTY RECOMMENDATIONS 243 B FATF GAFI 279 C CONSOLIDATED KYC RISK MANAGEMENT 283 Glossary 297 List of abbreviations 311 Useful websites and suggested further reading 313 Index 315