What Brexit teaches operational risk management

[seidu]

This may interest forum members

http://www.risk.net/operational-ris...at-brexit-teaches-operational-risk-management

Thanks
Seidu

 

[David Harper CFA FRM]

Hi @seidu Thank you, this is an interesting article. My favorite part is below (emphasis mine), but I also very much like her resilience point that "management is as important as prevention." I'll include this in tomorrow's Week in Risk; I think I've realized that some of the risk.net articles are free (ie, not behind the paywall), like this one. Thank you

Receptiveness: don't rule out the unlikely
I never thought Brexit would happen. I trusted the bookies, distrusted the opinion polls and was convinced the old populist arguments for protectionism and curbs on immigration would seduce only a minority. I wasn't alone in being wrong, but I was wrong. I was so convinced of a 'remain' vote that I didn't prepare for it.

One of the companies I work with, a French financial firm, felt similarly. Its risk management department prepared nothing except a vague internal note on Brexit – and only then because it was encouraged to do so by the European Banking Authority. On the morning of June 24 it appeared unprepared, with no contingent communication to offer its clients.

Not everybody was so blind or so careless. At the other end of the spectrum, a UK-based firm I have worked with closely didn't leave anything to chance. The firm, which is active in foreign exchange markets, didn't expect a 'leave' outcome any more than I did, but the chief risk officer and his team made sure to prepare for every possible market scenario, no matter how remote it looked

The 40 traders and risk managers who spent the evening of June 23 at their desks did not waste their time. Many stayed up for more than 30 hours in a row. What happened exceeded all their expectations, but did not reach their worst-case scenario either, and the firm actually did very well that night.

That firm and its chief risk officer taught me a risk management lesson: don't ever let your personal convictions come in the way of prevention and contingency. Be open-minded and receptive to others' ideas and opinions when preparing for the future, however unlikely or bizarre they might seem. Life is vastly unpredictable, and human minds are particularly ill-equipped at predicting future events, so be humble in your forecasts.

 

[QuantMan2318]

Dear @David Harper CFA FRM

I happened to do a thread on the Brexit when all hell broke loose in June. I thought it might be worthwhile to bring it up again, there are a couple of Risk strategies that have been discussed by the others and me. I would certainly like to hear your thoughts on the same as it was the only thing missing
https://forum.bionicturtle.com/threads/financial-implications-of-the-brexit.9652/

 

[David Harper CFA FRM]

Hi @QuantMan2318 oh wow! very cool Sorry that I didn't weigh-in, I will certainly try to review the thread and include comment(s) in tomorrow's Week in Risk. Thank you for the contribution!!! Hope your weekend is going well

 

[QuantMan2318]

Thanks David. I value your take on these very much!