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Tuesday, December 6, 2011

Unified Policy Frameworks

Causal Capital has recently been asked to develop a framework for unifying policy in a bank. We have decided to share our draft approach on this journal because some of our readers are working in this area of banking and might find the presentation interesting and useful.

Please Proceed into this article for the presentation.

What is superb policy?
One of the best methods for restricting the exposure a bank takes on either when it lends, invests or pretty much does anything, is to write policy around what is classified as an acceptable set of requirements for a deal and what are not.
Before policy can be written for a bank, a clear understanding on risk appetite and tolerance needs to be in place.  Policy is anchored to this very sentiment of running a business. 
Martin Davies | Causal Capital
In fact policy plays a most central role in the risk space because it describes to staff and management the key control points for monitoring risk in line with risk appetite and tolerance. It also draws the line on what is simply unacceptable business practice and in this sense it becomes that line which can't be crossed.

Obviously a good policy system is a system of rules but some of the better policy frameworks in use should also furnish employees with the following:  

[] Limits & thresholds for writing or declining business is an obvious feature of the system.

[] Service level agreements which staff should operate within.

[] What is standard practice and what to do when presented with bespoke opportunities.

[] Guidelines on how to proceed forwards with various themed task sets.

[] Policy is kept concurrent and version control has junctures that are explained.

[] A top policy system would also standardize its dictionary to avert reader confusion.

[] Policy has referenced internal authors, sources and further reading topics. 

[] A reference point for audit and to highlight where an employee is in breach of practice.

[] Outstanding policy can also be used to set expectations and even support staff  training and  induction programs.

[] Policy or changes to it overtime need to be tracked so that strategically, a policy's ability to support risk appetite and tolerance is understood. If risk appetite changes, the alterations to policy need to be captured and attributed to this shift in sentiment towards risk.

Why unify policy?
Some of the leading banks are starting to see their policy brief as more of a service for streamlining guidelines and standardizing practice, rather than just simply a rule book. In this case, the policy system becomes an oracle of information or a knowledge centre that can be utilized by staff for a broad range of activities.

The policy system we are describing in our presentation is such a service. It centralizes policy making behavior, tracks changes overtime and importantly shows the enterprise wide interlinks between policy centres or initiatives and functional business unit enablers.

The presentation can be found here View Presentation

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