Managing FX Operational Risk

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Course Description

What Will You Learn

 By the end of the training participants will:

  • Clearly understand each of the stages and processes of foreign exchange trade and settlement, and fully comprehend how each phase is related to the larger process flow
  • Have a clear understanding of operational risk in the context of FX and be able to manage effectively all the processes
  • Obtain a clear insight into practices that may mitigate some of the operational risks that are specific to the FX industry
  • Assess the reduction of operational costs
  • Understand the key best practices that are used in the FX industry, current developments and future directions

Main Topics Covered During This Training

  • Analysis of the Foreign Exchange marketplace 
  • How foreign exchange operates
  • Types of risks that effect FX operations
  • Foreign Exchange best practice
  • The Foreign Exchange process flow
  • Strategies for mitigating the FX operational risks
  • Pre-trade preparation
  • Trade capture
  • Confirmation and netting
  • Settlement and Nostro reconciliation
  • Accounting & financial control processes

Who Should Attend

Operations and business staff at all levels involved in any aspect of FX. This will include:

  • Operational Risk Managers and Executives
  • FX Dealers
  • Brokerage Houses Porfessionals
  • Money Managers
  • Commodity Trading Advisors
  • Insurance Companies
  • Brokers/Dealers
  • Corporations
  • Participants in the Interdealer Market
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In-Company, call us for more information

Day One

Session 1

The Foreign Exchange Marketplace 
 
We begin this course by setting the scene and examining nature and extent of the foreign exchange market. 
  • The size of the market
  • Who the participants are (both key players and occasional users).
  • How the market is developing and its past growth.
 
Basic Foreign Exchange Principles
  • How foreign exchange operates.
  • We provide a range of examples that clearly illustrate the operation of foreign exchange markets in terms of the transactions, how they are processed and how they are settled.
  • What does the jargon mean – we explore foreign exchange definitions.
  • Foreign exchange settlements – Correspondent banking and Continuous Linked Settlement (CLS).
 
Session 2

Operational Risk
  • What is risk? 
  • What are the different types of risks that effect foreign exchange operations? 
  • Why operational risk is 'special'
  • How these risks effect the bank
 
The Theory of Managing Risk 
 
We explain the basic Operational Risk Model in action, dealing with all the relevant components as they interact with one another
  • The Model
  • Managing operational risk
  • Risk analysis
  • Risk impact/frequency
 
Case Study. 'A bank, a foreign exchange trading system and operational risk'. This case study illustrates all the aspects of operational risk and is drawn from recent events in a major bank's trading division. 
 
Session 3

Foreign Exchange Best Practice
  • What are best practices? 
  • We explore how using these practices may also help to reduce the level of risk in the foreign exchange market more generally. How can these practices help reduce operational costs?
 
Future Trends in Foreign Exchange
  • What are the major trends in the foreign exchange market today and how will they foreign exchange operational risk
  • Management's role in effective risk mitigation.
  • Why operational risk is 'special'.
 
The Foreign Exchange Process Flow
 
In this session we look at the generic view of the foreign exchange process flow, form pre-trade preparation, trade capture, confirmation, netting,  settlement, nostro reconciliation, and the accounting & financial control processes. This lays the foundation for a detailed examination of each of these processes, the activities that they entail and the risks and their mitigation.
 
Examples are given for each of the processes involved to give the delegate a clear understanding of the key operating and risk issues involved.
 
Day Two
 
Using Foreign Exchange Best Practice to Manage Risk 
 
In today’s four sessions we offer a collection of practices that will assist in mitigating some of the operational risks that are specific to the foreign exchange industry
 
We examine each of the seven processes on the following basis;
The individual process, what it is meant to achieve and now it operates (we cover in turn pre-trade preparation, trade capture, confirmation, netting, settlement, nostro reconciliation, and the accounting & financial control processes).
  • What are the risks? 
  • The best practices used to mitigate these risks.
 
For each process we show below some of the mitigation factors that will be covered in detail.
 
Session 1

Pre-trade preparation
  • Know your customer, Documentation requirements, Master netting agreements, Agreement on trading and operational practices.
  • Trade capture
Entering trades, Using Straight-Through-Processing, Use of real-time credit monitoring, Standing settlement instructions.
 
Session 2

Confirmation
 
Special requirements for confirming by non-secure means (structured or nonstandard trades, confirming by telephone), Controls electronic trading platforms, Verify expected settlement instructions, Netted transactions, Internal transactions - Block trades and split allocations, Third-party advices, Confirmation matching process, Exception processing and escalation procedures.
 
Netting
  • Online settlement netting systems, Bilateral net amounts, Cut-offs for netting, Consistent operational practices and documentation.
 
Session 3

Settlement
  • Real-time nostro balance projections, Electronic messages for expected receipts, Cancellation and amendment facilities, Payment failures, Thee settlement process and settlement exposure, Crisis situations outside your organization.
 
Nostro reconciliation
  • Nostro account reconciliation, Identify non-receipt of payments, Operational standards for nostro account users.

Session 4

Accounting & financial control processes
 
  • General Ledger reconciliation, Daily position and Profit & Loss reconciliation, Daily position valuation, Trade prices for Off-Market Rates.
  • General Best Practices for Managing Foreign Exchange Operations Risk 
  • Segregation of duties, Business and operational roles, Understand operational risks, Procedures for introducing new products, new customer  types, or new trading strategies, Control system access,  Audit/risk control groups, Operational performance measures, Outsourcing & industry standards and best practices, Record keeping,  Contingency plans

Richard Barr

Richard holds a B.S. in International Business Administration from San Jose State University in California. His professional experience spans 19 years, 5 of which were spent with Wells Fargo Bank. Another 5 were spent honing his global banking skills, when Richard was involved with International Trade Finance, Real Time Gross Settlement and Cross Border Banking. The past 9 years have been in the private and high-tech sectors providing high-level consulting services, business analysis, project management and training to a wide range of banking clientele across the globe.   

He has spent extensive time servicing a diversity of “financial institutional” clients, in South Africa, Poland, Sweden, Ireland, Netherlands, Greece, Bermuda, Malawi, United Kingdom and across North America. Clients include AIB Bank, Eurobank, ABSA Bank, CitiBank, Swedbank, INDEbank, IBM, Montran and Fundtech, as well as many others. 
 
Richard has also filled the role of advisor to central banks on payment systems and technical payments issues. Furthermore, key staff from the Bank of England, South African Reserve Bank, Central Bank of Ireland and Bank of Portugal who have attended training sessions presented by Richard.

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Managing FX Operational Risk In-Company