The Advanced Risk Accounting and Economic Profit Masterclass 2017

THE ADVANCED RISK ACCOUNTING AND ECONOMIC PROFIT MASTERCLASS 2017

19 - 20 June 2017 |Park Royal Hotel, Singapore

contact Eric Khoo Tricia Lim (65) 6444 9049 | (65) 8383 2480 (65) 6444 1644 Designed by Freepik [email protected] [email protected] CT Hub, 2 Kallang Ave, #07-26, Singapore 339407

INTRODUCTION Accounting is focused on reporting the past which is only a fraction of what matters to banks’ boards, management and stakeholders. They have an equal need to be informed about what is likely to happen in the future. More specifically, they need to know: how much risk a bank ac- cepts as it strives to create shareholder value; what is the probability of accumulated risks turning into losses if operating conditions change, for example, in a severe recession; and what will be the likely scale of such losses. Accounting standards, such as IFRS, are not designed to provide such risk-based information.

CEOs and CFOs are becoming increasingly concerned at the absence of structured enterprise level risk reporting that reliably informs them of the extent to which a bank’s risk position is endangering its financial condition. Their response is to challenge accountants and risk managers to find ways of risk-adjusting accounting profit to report economic profit with the aim of making it the primary metric on which banks’ financial performance and condition is evaluated.

A key but missing input to the calculation of economic profit is explicit, standardised and comparable measures of banks’ exposure to all forms of risk. This still missing input explains why banks have made such little progress in this area to date. ————————————————————————————————————————————————— THE MASTERCLASS The Pinnacle Training Group is pleased to present a Risk Accounting and Economic Profit Masterclass directed by Peter Hughes. Peter currently leads a team of researchers that has successfully codified a new accounting technique ‘Risk Ac- counting’ that incorporates a revolutionary risk exposure measurement method. In 2016, he and colleagues published the results of their research which was widely acknowledged by leading academics and practitioners as a major step towards the integration of risk and accounting data in a common, risk-adjusted reporting framework.

In this masterclass, Peter will use a detailed case study to demonstrate how Risk Accounting is used to calculate economic profit which, in turn, provides the foundation on which accounting-based enterprise risk management (ERM) systems can be constructed. ————————————————————————————————————————————————— COMMENTS ON RISK ACCOUNTING The comments below are extracts from the Journal of Risk Management in Financial Institutions that reported the reviews conducted by leading academics and practitioners of the Risk Accounting method:

“The integration of accounting and risk measures (both economic and regulatory) makes an important contribu- tion to making risk-adjusted returns transparent” “…represents a sizeable step forward in the search for a practical global solution to enterprise risk management (ERM)” “…the London Whale trading loss… Here, the (method) would bloom” “…a very useful conceptual framework that could serve as a baseline for fulfilling the needs of BCBS 239, with a relatively simple to implement approach” “…the first mechanism proposed to integrate the major components of risk in a large institution” “…(the) proposed framework is both novel in addressing the limitations of existing ERM risk measurement frameworks and practical in adapting the control and reporting frameworks that already exist in accounting and general ledger systems” “The framework… harmonizes all quantifiable risks and valuation uncertainties into one consistent framework without getting bogged down with specific risk models, methodologies and calibrations” “…(the) approach could be a meaningful way of establishing a common metric for operational risk, an area in risk management which, after many years, is still lacking analytical rigour” 1| The Advanced Risk Accounting and Economic Profit Masterclass 2017

DAY 1

9.00 - 9.15 1.00 - 3.00 Introduction & Welcome Emerging Risk and Accounting Practices and Standards 9.15 - 10.30 The Status of Accounting and Risk • An overview of key post-crisis regulatory Management Systems papers on risk control & reporting: • An analysis of the financial crisis and its • Risk data aggregation and risk reporting causes (BCBS 239) • The regulatory framework: balancing risk • Understanding systemic risk and its sensitivity, simplicity and comparability causes (BCBS 258) • Principles for an effective risk appetite • Unexpected losses and their impact framework

• The post-crisis shift in regulatory focus • An overview of cross-industry risk from ‘capital at risk’ to ‘firm at risk’ management standards:

Case Study and Exercise 1: Delegates analyse • COSO: Aligning Risk with Strategy & the risk environment in which their firms Performance operate and identify the principal threats • ISO 31000: Risk Management – Principles that could give rise to material unexpected and Guidelines losses • Emerging accounting techniques: • Risk accounting 10.30 - 11.00 Break & Networking • Confidence accounting

11.00 - 12.00 • Sustainability accounting Risk Management – Understanding the Basics 3.00 - 3.00 • The essentials of risk measurement Financial Controls and Risk Controls – A Comparison • The building blocks of a risk management system • The financial reporting cycle: the general ledger and sub-ledgers • Expected vs. unexpected losses – interpreting loss distributions • Ensuring financial reporting accuracy: proofs, reconciliations and substantiations • Confidence levels and intervals applied in finance • Financial controls vs. risk controls: status • Basel’s soundness standard: the test of capital and gap analysis adequacy • The evolving accounting systems: financial, management and risk accounting 12.00 - 1.00 5.00 - 6.00 Questions LUNCH Summary of the day 2| The Advanced Risk Accounting and Economic Profit Masterclass 2017

DAY 2

9.00 - 9.15 1.30 - 2.30 The Case for Risk Accounting Risk Adjusted Performance Measurement (RAPM) • Basel’s vision of a simplified regulatory framework • What is risk adjusted return on capital (RA- ROC)? • Observations from industry and academia on the need for accounting reform • Optimising the management of financial re- sources: • The concept of ‘monovalency’ and its appli- cation in control and reporting syste o Capital: Risk Based Capital (RBC) ms • The concept of risk accounting as an exten- o Operating Costs: Activity Based Costing (ABC) sion of management accounting o Liquidity: Funds Transfer Pricing (FTP) • Defining a common unit of risk measurement and reporting • Using RAROC for decision support and management reporting • Defining a ‘risk culture’ metric and ensuring that positive cultures evolve • Implementation issues and challenges 9.15 - 11.00 Designing and Implementing an Integrated 2.30 - 4.00 Risk and Accounting System A Risk Accounting Blueprint: A Vision of the Fu- ture • Tying risk accounting and reporting to firms’ official accounting records • Designing a ‘threats’ vs. ‘mitigation’ matrix • Translating accounting and operating data • A common measurement-based framework for: into risk data o Risk appetite setting and monitoring • The role of enterprise architectures and business components in risk accounting o Stress testing and benchmarking • Producing and critiquing risk accounting • The role of Internal Audit reports • Upgrading and institutionalising enterprise risk Case Study and Exercise 2: The ‘Safe Bank’ case management (ERM) systems study: Delegates are presented with sample operating, risk and accounting data from a • Risk adjusting published financial statements commercial / investment bank. Using an Excel version of the Risk Accounting model, they • Integrating finance and risk in business planning develop summary risk reports for the Group and 4.00 - 4.30 by business component, product and risk category. Break and Networking 11.00- 11.30 4.30 - 5.30 Break & Networking Economic Profit, Risk and the Balanced Scorecard

11.30 - 12.30 • Establishing economic profit as the primary performance metric Risk Management – Understanding the Basics • Integrating economic profit in balanced scorecard • The essentials of risk measurement • The building blocks of a risk management system •Achieving business strategic objectives: aligning • Expected vs. unexpected losses – interpreting performance and risk loss distributions • Confidence levels and intervals applied in finance • The key metrics that demand board and senior • Basel’s soundness standard: the test of capital management focus adequacy 12.30 - 1.30 5.30 - 6.00 LUNCH Questions Summary of the day Course Learning Outcomes Who Should Attend?

• UNDERSTAND the causes of misalignments be- tween banks’ risk management and accounting sys- • Head of Internal Audit tems that provided the backdrop to the financial crisis • Head of Balance Sheet Management • EXPLORE how, through the definition of a common risk metric to express all forms of risk, eco- • CFO & Staff nomic profit and risk adjusted return on capi- • CRO & Staff tal (RAROC) can be more precisely calculated • Head of Liquidity Risk • EVALUATE the directional tendencies of regulatory reform aimed at achieving global finan- • Finance Professionals cial stability and the implications for banks’ • Compliance Managers risk management and accounting systems • Risk Managers • INTEGRATE conventional risk management and • Head of Regulatory Reporting accounting tools and techniques within a common risk measurement and reporting framework • Data Management • ALIGN strategic vision with fully integrat- • Operations & IT ed finance and risk business plans and balanced scorecards focused on optimizing financial performance and risk mitigation • IMPLEMENT a common quantitative and qualitative enterprise risk management (ERM) system based on fully aggre- gatable, auditable and comparable risk data • DESIGN strategies that adapt existing financial and accounting control and reporting frameworks for risk data

About Trainer Peter is a former banker with JPMorgan Chase, a fellow of the Institute of Chartered Accountants in England & Wales, a member of the advisory board of Durham University Business School’s Centre for Banking, Institutions and Development (CBID) and a visiting research fellows at the Leeds University Business School.

Peter now devotes most of his time to researching next generation bank reporting methods and systems. His most notable achievement in this area is the codification of a new technique ‘Risk Account- ing’. He has authored and co-authored numerous academic and practitioner papers on this and related subjects as well as teaching and presenting at conference, webinars and in academia.

In his 28 year corporate career with JPMorgan Chase and Abbey National (now Santander UK) his roles included Head of Finance Shared Services, Head of Finance Advisory Services, Chief Operating Officer (Germany), Acting Head of Treasury & Trading (Germany), Head of Risk Management - Glob- al Shared Technology & Operations, Country Chief Financial Officer (Brazil), Country Operations Executive (Brazil) and Regional Audit Manager (South America). The Advanced Risk Accounting and Economic Profit Masterclass 2017 19 - 20 June 2017 | Park Royal Hotel, Singapore COURSE FEE EARLY BIRD: ENDS 24 April 2017 [ ] SGD 2000 REGULAR FEE: AFTER 24 April 2017 [ ] SGD 2400

DELEGATE REGISTRATION PAYMENT METHODS 1ST DELEGATE  Bank or Telegraphic Transfer made payable NAME to: DESIGNATION TPGI Pte Ltd DEPARTMENT ORGANIZATION (Bank Charges to be borne by Participants) DID Account No: 351-900-086-3 MOBILE SWIFT: UOB VB SGSG EMAIL Bank Code: 7375 2ND DELEGATE Address: UOB Bank, 80 Raffles Place, UOB Plaza, NAME Singapore 048624 DESIGNATION DEPARTMENT ORGANIZATION  Cheque made payable to: DID TPGI Pte Ltd MOBILE CT Hub, 2 Kallang Avenue, #07-26, EMAIL Singapore 339407 APPROVING MANAGER NAME VENUE INFORMATION DESIGNATION DEPARTMENT Park Royal Hotel, Singapore ORGANIZATION 7500 Beach Road, 199591 DID Tel: 6505 5666 MOBILE EMAIL

TERMS & CONDITIONS By completing this registration form, your organization shall be subjected to the full payment of the course’s admission fee. Should your registrant(s) be unable to attend, substitute(s) is/are always welcome at no extra charge. Alternatively, a 50% refund will be provided for cancellation of registrant(s) received in writing no later than 4 weeks prior to the course date; thereafter, no refund can be made. The course organizer reserves the right to alter the course’s program without prior notice including substitution of its speaker(s) and/or topics and/or alteration of the date(s) and/or venue of the course. The course organizer will not be liable for any travel or accomodation expense(s) incurred by your organization or registrant(s) due to the aforementioned course alteration(s). Payment prior to the course is mandatory for attendance.

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