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Assessing firm risk 27-28 September 2012

Assessing firm risk 27-28 September 2012. Andrew Garbutt Director of Risk, SRA. The SRA Risk Framework. Identify. Assess. Monitor. Control. Evaluate. Before acting, we identify risks based on a central risk index.

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Assessing firm risk 27-28 September 2012

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  1. Assessing firm risk27-28 September 2012 Andrew Garbutt Director of Risk, SRA

  2. The SRA Risk Framework Identify Assess Monitor Control Evaluate Before acting, we identify risks based on a central risk index We assess risks consistently & share these assessments across the SRA to aid understanding We monitor risk levels against our tolerance to direct control activities We control unacceptable risk levels through regulatory tools We continually evaluate our effectiveness by monitoring changing outcomes We learn and adapt our tolerance, resourcing levels and approach to contolling risks

  3. Risk Assessment • We will assess risk at the level of : • Event • Individual • Firm • Sector • Market

  4. Risk Index We have identified 6 high level categories of regulatory risk

  5. Probability scoring <- more quantitative more qualitative -> frequency> • High volume, lower impact events • every day events • more predictable • Very large single events • severe faults in very large firms • large negative reputation events • External events • political, economic, social, technological shifts impact / severity >

  6. Risk assessment – entity level • Each one of the 11,000+ firms we regulate will be supervised • The level of resource allocated to supervising each firm will be based upon the level of risk • The firm assessment will have two key aspects - impact and probability: • First each firm’s potential to impact upon our regulatory objectives will be scored. This screening process will be largely automated • Then a more detailed assessment will take place which looks at the probability of issues arising within a firm

  7. Impact scoring • This represents the regulatory footprint of the entity

  8. Risk profile – data led risk assessment • Brainstormed possible risk indicators where data was available in the SRA • Informed by review of factors present in past cases • Identified pools of firms where risks could be shown to have crystallised - e.g. Where there has been a finding of dishonesty • Tested for the presence of our risk indicators • Tested for statistical significance in pool of firms compared to all firms

  9. Risk profile – data led risk assessment FALSE Indicator Score = 0 TRUE • Relative strength of the significant indicators used to inform weightings • Indicators used to calculate a category score Indicator Score = 4 Category score = 16 RAG rating TRUE Indicator Score = 3 FALSE Indicator Score = 0 TRUE Indicator Score = 9

  10. Risk profile – data led risk assessment outputs

  11. Evaluation of the model Sources of evaluation: • Profiles of intervened firms • Good correlation between levels of risk in profile, and intervention • Some correlation with grounds of intervention • Can see direction of travel for risk matched to grounds for intervention • Data set of 600 firms with grounds to suspect higher levels of risk • Comparison with assessments of other organisations

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