Bank of China will employ a JPMorgan-inspired tool to measure the operational risks run by its branch offices in the US. Called Horizon, the internet-based software helps banks to document their risk mitigation controls and evaluate a business units' compliance with those controls.
JPMorgan developed the software in-house to monitor its own processes and is now selling the solution to others. "This is a way for Bank of China to keep an eye on its US branches from an operational risk perspective," says Craig Spielmann, who heads the Horizon business for JPMorgan. "By using the system they can check the collateral on loans that are over a certain amount, or check whether the revenue goals set for the overseas branches are suitable given the operational environment."
Spielmann says 18 clients have bought the Horizon product since its launch in 2000 and recently there has been a spike in interest from Asian banks.
"As banks deal with the spectre of terrorism, SARS and corporate accounting scandals there is more pressure on them to identify operational hiccups before they happen and ensure that the risk strategies they have in place are adequate. Credit risk is no longer the key focus for banks. They realise that unchecked operational risks can cause as many problems."
Another local user of Horizon is the Hong Kong Monetary Authority, which uses the internet-interface to gather operational risk information from 40 banks in Hong Kong. This information is then sliced and diced to give the HKMA a picture of general market practice, says Spielmann.
"We were very impressed with the way the HKMA took the data and produced customized reports that gave them a good feel for the issues in that market."
Just this week, JPMorgan launched a Chinese-language version of Horizon. The launch co-incided with Swift's annual Sibos conference being held in Singapore. Spielmann says the bank is now working on a Thai version.