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Key Risk Indicators

Key Risk Indicators. FIDUCIARY INVESTMENT RISK MANAGEMENT ASSOCIATION NATIONAL CONFERENCE April 6-10, 2008 ORLANDO Presented by Sally Miller, Director, Center for Securities, Trust, and Investment AMERICAN BANKERS ASSOCIATION and Debbie Austin, VP Fiduciary Compliance Manager, PNC Bank.

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Key Risk Indicators

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  1. Key Risk Indicators FIDUCIARY INVESTMENT RISK MANAGEMENT ASSOCIATION NATIONAL CONFERENCE April 6-10, 2008 ORLANDO Presented by Sally Miller, Director, Center for Securities, Trust, and Investment AMERICAN BANKERS ASSOCIATION and Debbie Austin, VP Fiduciary Compliance Manager, PNC Bank

  2. KEY RISK INDICATORS • What are they? • Tools that provide management a barometer of tolerable levels of risk • Early warning signals • Measures of change • Tool to measure risk causes

  3. KEY RISK INDICATORS • Why are they important • Predict potential hotspots • Drive behavior via limits/targets • Regulatory focus • Establishes risk appetite

  4. KEY RISK INDICATORS • Identifying Key Risk Indicators • Include Business Units, expert staff, Senior Management, Technology, Compliance, Risk and Internal Audit • Focus on key areas • Support risk monitoring • Support decision making

  5. KEY RISK INDICATORS • Build the framework • Not as easy as it sounds • KRI’s should be meaningful • Define category and factors • Clear definition/hypothesis: what is being measured? • Type of indicator: risk, performance, leading, lagging, control • Source/Detail • Meaningful thresholds

  6. KEY RISK INDICATORS • Categories • People • Fiduciary • Audit/Exams • Legal • Fraud • Service Providers • Pricing • Asset Management • Affiliates

  7. KEY RISK INDICATORS • Categories • People - Technology • Fiduciary - Compliance • Audit/Exams - New Initiatives • Legal - AML & BSA • Fraud • Service Providers • Pricing • Asset Management • Affiliates

  8. KEY RISK INDICATORS • Indicators • #of open audit, regulatory and compliance issues • Client complaints • Revenue and Expense Streams • # of accounts closing (service, fee, performance issues) • Overdrafts • Trade errors • Other dollar losses

  9. KEY RISK INDICATORS • Indicators cont. • Regulatory capital • Account reviews not completed • Portfolio guideline exceptions • Proprietary Product Performance • Pending and open litigation • Employee turnover • Unpriced assets • Reconciling items greater than 180 days

  10. KEY RISK INDICATORS • FIRMA Trust Company Example • KRI’s monthly by quarter • Leading, Lagging and Concurrent • Established and agreed upon thresholds • Green, Yellow, Red indicator system • Information obtained from lob

  11. KEY RISK INDICATORS • FIRMA Trust Company Example • Automated information gathering • Risk Metrics Tracking • Include Action Plans • Functional and Environmental KRI’s

  12. FIRMA TRUST COMPANY Fiduciary and Investment Key Risk Indicators 1st Quarter 2008 Fiduciary and Investment Risk Report • Contents: • Overall Rating Page 1 • 1. Functional Indicators Page 2 • 2. Environmental Indicators Page 4

  13. Overall Rating Page 1 Enterprise-wide Risk Management Assessment Trend Functional Indicators Conclusions Environmental Indicators Conclusions Residual Risk Fiduciary and Investment Risk Overall, the inherent risk trend is Stable • Definitions: • GREEN Residual Risk: Risk exposure is effectively and efficiently managed to FIRMA’s established risk appetite. • YELLOW Residual Risk: Risk exposure is within the upper limits of FIRMA’s risk appetite. Management action may be warranted. • RED Residual Risk: Risk exposure exceeds FIRMA’s risk appetite and immediate response is warranted. • Inherent Risk Trend: Provides a current assessment of how the inherent risk is expected to move over the next quarter, but does not • necessarily indicate a residual risk level change. • Risk Management Assessment: Indicates how well the current risk management infrastructure manages inherent risk. 2nd Quarter 2008 Outlook: • Examinations: • Acquisition Issues: • New Systems:

  14. Functional Indicators Page 2

  15. 1. Functional Indicators (continued) Page 3 COLOR

  16. 2. Environmental Indicators Page 4 COLOR

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