Operational risk at Zions Bancorporation

RMA Journal, The, Nov, 2002 by David Stone

Zions' risk assessment solution is an important element in building a more robust risk culture. The system will help management assess and control risk and will facilitate healthy discussion between business lines and assurance groups by way of the system's work-flow technology.

Risk system requirements. Zions established system requirements for its operational risk system based on feedback from business and support units. Input was received from Retail Banking, Wealth Management, Capital Markets, Technology & Operations, Internal Audit, Credit Administration, Finance, Compliance, and others.

Input was also received from the OCC and the Fed to ensure Zions' risk system was consistent with Basel AMA guidelines. After developing the early prototype, the system was shown to select community, regional, and super-regional banks. Feedback was positive, and several new ideas were identified to further enhance the system.

Zions established the following requirements for its operational risk system:

1. Act as an enterprise risk management tool for operational risk and other risk categories.

2. Integrate both qualitative and quantitative risk tools (such as risk assessment, key risk indicators, and loss data) to encourage greater thought and data integrity.

3. Support Basel AMA guidelines so Zions could position itself to maintain less capital.

4. Equip the system with intuitive screen designs to reduce training needs and enhance use.

5. Provide simple, robust reporting capabilities so everyone can use the system according to their respective needs.

6. Include dynamic work flow and alerts to enhance communication, issue escalation, and accountability.

7. Provide an online audit interface to simplify and strengthen business risk validation.

8. Create a Web-based, scalable tool that would enable Zions to use the system across multiple states and lines of business.

After careful review of system alternatives, Zions contracted with Lexign to build an operational risk system. Lexign, based in Nashua, New Hampshire, is a leader in data capture, business process automation, digital signing, and document management technology. Lexign has over a decade of experience designing systems for clients across the Americas and Europe that streamline and automate process work flows in secure Web environments. They were selected because of their ability to deliver on Zions' current requirements as well as on future enhancements.

Methodology and risk scoring. Zions recognizes that the primary ownership and management of risk resides with its businesses. As such, business lines have responsibility to complete their own risk assessments. They do so following a simple methodology of identifying objectives, the risks to those objectives, the mitigating controls, and the actions needed. The system's screens and data fields are aligned in a "straight-through" process to enable business staff and management to quickly enter data and analyze and report on risk. Screen designs guide users in entering data and limit the need to toggle between views.