Beyond compliance: Exchanging
information with Integrity and
Quality
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Agenda
2

Regulatory Environment

Enterprise Information Model

Compliance through quality and integrity

Key Benefits
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Agenda
3

Regulatory Environment

Enterprise Information Model

Compliance through quality and integrity

Key Benefits
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Regulatory Environment Timeline
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Basel I (1988)
Data Protection Act (1998)
IASB(2001)
Sarbanes Oxley (2002)
HIPPA
Cromme Code (2002/2003) for Germany
UK Companies Bill(2002/2003)
Basel II (2004)
IAS/IFRS (2005)
Basel III (2008) ?
………….
[Ref: Gartner, 2004, BMC Inc]
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Basel II
5
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Operational Risk


The risk of loss resulting from inadequate or failed internal processes,
people, and systems, or from external events.
30 banks had reported total operational losses of around 2.6 billion euros.
Ref: BIS, “Quantitative Impact Study” , 2002; Rick Harris, “Domestic regulatory approaches to operational risk”, 2002
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Where is the error ?
1600
1400
The most likely and the most costly operational risk- proneevents were in process management.
1200
Risk
1000
Process variation
Lack of Information Integrity
800
600
400
200
0
Internal Fraud
External fraud
Employment practices
Product services
Damage to assets
Business &System failure
Process management
Category
[ Ref: Risk Management Group, 2002. The quantitative impact study for operational risk: Overview of individual loss data and lessons learned. Report
to Basel Committee on Banking Supervision, Bank for International Settlements, (January) ]
7
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How to Minimize Operational Risk
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

8
You need a management system foundation to contain
all of your risk-prone areas
You need a methodology that accommodates root cause
analysis, gap remediation, and internal control profiling
You need an information integrity framework to assure
the dependability of information flows and process
efficiency.
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Agenda
9

Corporate Governance & Regulatory Environment

Enterprise Information Model

Compliance through quality and integrity

Key Benefits
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A Comprehensive EIM

Any Enterprise Information Model (EIM) is a comprehensive framework for identifying
focal business processes for integrity evaluation

The four quadrants can be populated with issues and processes representing every
aspect of enterprise operations
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What is Information Integrity?
Information Integrity (I*I) is the trustworthiness or dependability
of information as defined by the accuracy, consistency &
reliability of information content, processes and systems.
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
Accuracy: The degree of agreement between a particular value and an
identified source that provides the correct value at a specific point in time.

Consistency: The degree of agreement among repeated instances of the
same information (occur in space, over time, and in relation to one another at
the same point in time).

Reliability: The degree to which information is complete, current, and
verifiable.
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Semantics Matter in the Information Age
Data
07232003WO255
51300C1805E190
0E
Information
Wisdom
Date: July 23, 2003
Airline: World
Flight Number: 2555
Take off time: 1:00 PM [CST]
Scheduled Landing: 6:05 PM
Eastern
Actual Landing: 7:00 PM
Eastern
Percentage On Time
Arrivals In Last:
Month
55%
Six Months
65%
Year
75%
Average Minutes Late In
Last:
Month
42
Six Months
22
Year
24
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Knowledge
If I take this flight, I will
probably miss my dinner
meeting because an
increasing number of
flights are late by an
increasing margin
Maybe I should fly on a
different carrier
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Basel II | Information Integrity Issues

Accuracy of Information
 Basel II requires accurate information about transactions
 Basel II requires that banks to have five (5) years of loss data. It
requires use of external data.


Basel II requires disclosed information to be accurate
Challenges
 How assure the accuracy of financial transactions? Are we
confident of the end of day balance ?
 How to assure Accuracy and completeness of external data
provided by consortiums or third party providers is not known
 How to assure the accuracy of the disclosure information
Ref: “Information Integrity and Basel II” by Stephen M. Schoneman, Oct 2004
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Basel II | Information Integrity Issues
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Consistency of Information

Basel II is very prescriptive for Credit Risk Management processes
and data; not so for Operational Risk

Strong peer bank information sharing on approaches and issues
associated with Operational Risk Management and Measurement
Challenges

Not enough guidance on Operational Risk from regulators

Concerns remain about comparability of data from bank to bank,
especially related to Disclosure requirements

Consistency of the risk assessment process and interpretation of
information across business lines
Ref: “Information Integrity and Basel II” by Stephen M. Schoneman, Oct 2004
14
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Basel II | Information Integrity Issues

Reliability of Information
 Banks will need to consider improving both arrangements for receipt of
information from correspondents and the time they conduct their own
reconciliations
 Dependent on many managers adhering risk management policies
and practices
 Disclosure (Pillar III) of Risk and Capital information to
shareholders/public will be subject to external audit

Challenges
 Need approach for determining relevance of external data
 Need system/s to capture, monitor, manage and report on loss events,
key risk indicators, risk assessments, modeling, etc.
 Need a common language for addressing these issues
Ref: “Information Integrity and Basel II” by Stephen M. Schoneman, Oct 2004 ; BIS, 1999
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Agenda

Regulatory Environment

Enterprise Information Model

Compliance through quality and integrity

Key Benefits
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Quality and I*I Integration
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Several Concepts – Several Tools
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Quality Management
Risk Management
Control Management
Information Integrity
Management
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Six Sigma, Quality Circle
Business Process
Reengineering
Integrity Risk Assessment
Security Risk Assessment
Risk Management Framework
(COSO Enterprise Risk Management Framework )
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Comprehensive Risk Management Approach
Integrity Management
Quality management
Ref: COSO Enterprise Risk Management Framework, 2004
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Basel II | Use of quality tools and I*I tools
Op Risk Needs
Six Sigma Can Provide
I*I can provide
Identification of critical
processes and activities
Hierarchical, process
view of a business
Hierarchical, information
flow view of a process
Monitoring of key
indicators and warning
of potential problems
Process Management &
Control
Integrity risk
management and control
Cure problems in
existing processes
Process Improvement via Automated information
DMAIC & Lean
controls
Prevention of problems
for new processes
Process Design via
DFSS
Process design through
I*I lens
Ref: AON Inc., 2004
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Basel II | Use of quality tools and I*I tools
Code
BL1
BL2
BL3
BL4
BL5
BL6
BL7
BL8
Busine ss Line s
Corporate Finance
Trading and Sales
Retail Banking
Commercial Banking
Payment and Settlement
Agency Services
Asset Management
Events
Code Level 1
Retail Brokerage
Code
EL11
EL12
External Fraud
EL21
EL22
Employment Practices and Workplace Safety EL31
EL32
EL33
Clients, Products and Business Practices
EL41
EL42
EL43
EL44
EL45
Damage to Physical Assets
EL51
Business Disruption and System Failures
EL61
Execution, Delivery, and Process Management EL71
EL72
EL73
EL74
EL75
EL76
EL1 Internal Fraud
EL2
EL3
6 Sigma and other tools
EL4
EL5
EL6
EL7
I*I, 6 sigma and other tools
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Level 2
Unauthorized Activity
Theft and Fraud
Theft and Fraud
Systems Security
Employee Relations
Safe Environment
Diversity and Discrimination
Suitability, Disclosure, and Fiduciary
Improper Business or Market Practices
Product Flaws
Selection, Sponsorship, and Exposure
Advisory Activity
Disasters and Other Events
Systems
Transaction Capture, Execution, and Maintenance
Monitoring and Reporting
Customer Intake and Documentation
Customer/Client Account Management
Trade Counterparties
Vendors and Suppliers
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Agenda

Regulatory Environment

Enterprise Information Model

Compliance through quality and integrity

Key Benefits
22
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Key Benefits

Enterprise-based
The Enterprise Information Model embraces all major
processes in the enterprise. One tool provides the total
perspective

Process-Focused
Our approach is driven by a relentless focus on practical
process understanding. As a result, we connect with
management thinking and deliver practical integrity
improvements.

Effective/Efficient
We look at processes from both effectiveness and efficiency
perspectives, thus broadening performance impact

Compliance-rich
Unitech is particularly suitable for supporting Sarbanes-Oxley
and Basel II compliance initiatives. We provide internal control
environment profiling

Generally adaptable
Unitech’s approach can be applied to ANY business process,
yielding powerful insights into information integrity, as well as
performance improvement potential
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More Resources
www.asq.org/ii
 www.informationintegrity.org
 www.unitechsys.com

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