New guide to Examining Business Risk published by the Institute of Directors (IoD)

A new guide to business risk, published by the Institute of Directors (IoD) in association with Airmic, Chartis, PwC and Willis, urges UK Board members to improve their understanding and management of risk in order to successfully deliver growth and prevent future crises.

“Business Risk – A practical guide for Board members” lays out in detail the roles and responsibilities of the board in assessing and managing business risk, the risk challenges currently facing UK businesses and the structural, personal and strategic solutions which can be used to address these challenges.

The full report can be downloaded in PDF format here.

Comments about the guide:

Simon Walker, Director General of the Institute of Directors, said: “If companies and the economy as a whole are to grow in today’s environment, it is vital that directors put risk management at the heart of business strategy.

Understanding risk helps you to become more enterprising without jeopardising your business. On the other hand, take the wrong kind of risk and you are heading for disaster, whilst avoiding risk altogether means you are condemned to stagnation. This guide will help directors get this crucial balance right.”

Alpesh Shah, director in PwC’s Actuarial Risk Practice, said: “There are few aspects of a board’s functioning that are as crucial to long-term corporate success as risk management.

Organizations that understand the risks they face and can articulate their risk appetite and define their risk strategy accordingly can have better decision-making, greater agility and a sharper competitive edge.

The practical points in this guide will be invaluable as Board members strive to achieve this.”

Daniel Wilkinson, CEO of Willis UK, said: “Unpredictable emerging threats like cyber, reputational and supply chain risks require Boards to take a long-term focus on building resilience throughout their organizations rather than having a traditional risk management policy based solely on anticipation.

The resilience approach will help companies respond quickly and dynamically to threats by ensuring that the right expertise and processes are in place.”

Banking: Social Media Challenges

Financial institutions (FIs) should integrate social media approaches into their marketing and customer service processes.

Most FIs are fairly clear that engaging customers, building brand awareness, and building brand affinity are why they’re involved with social media.

Engagement may be the objective, but “engagement” isn’t accomplished through persuasion.

Banking and the Moral Dilemma

As Wall Street and the major European banks — led by the newly notorious Goldman Sachs — report record quarterly results and record bonus accruals, the public and policymakers have grown increasingly frustrated.

Their outrage stems from incredulity. How could institutions saved by the taxpayer 18 short months ago possibly be paying out staggering bonuses now, to the very people who caused the crisis? Moreover, how did these institutions come to make so much money in the first place?

In parallel to this outrage is the growing realization that a globally coordinated approach to bank regulation is unlikely. As a result, governments and regulators will be restricted in their ability to address some of the core issues because of jurisdictional arbitrage, and may be viewed as taking insufficient action to “do something about the banks.”

Perhaps as a consequence, the authorities have adopted an increasingly retaliatory posture. This includes some extraordinary actions, such as the pursuit by the SEC in April 2010 of Goldman on fraud charges in the U.S., unthinkable only a few months ago.

More generally, policymakers on both sides of the Atlantic are looking at punitive new tax measures. The bankers have responded with the increasingly defiant claim that they are victims of the war for talent, merely doing what it takes to ensure they have the best people to do “God’s work.”

Meanwhile, still unanswered is the most critical question: Why did the system go out of control in the first place? Most bankers surely understood that taking such unprecedented risks might result in catastrophic institutional failure and enormous loss of personal wealth.

Why wasn’t that enough to keep them from taking the course they did? If global policymakers better understood the answer to that question, they would be able to take much more effective measures.

The real answers to these questions have less to do with villainy or lax supervision than with inherent moral hazard. Addressing this hazard would be the right reason for political leaders and the boards of banks in the U.S., Europe, and elsewhere to be interested in bankers’ compensation.

Today, the urgent question that remains unanswered is whether the proposals that are moving ahead will address moral hazard adequately and thus prevent another systemic crisis.

There is clearly a mismatch between the traders’ interests and those of the bank’s shareholders and the taxpayers who are the underwriters of the state’s implicit guarantee of these institutions.

The solution may lie, not in aggregate, rules-based regulations but in a reassessment, within each bank, of how the “triangle” principle should be applied; that is, how to interweave the ways risk is taken, people are paid, and capital is allocated, and hence the share of profits that goes to insurance, to compensation, and to shareholders’ accounts.

Instead of shifting the burden of judgment to Solomonic regulators, this approach would better harmonize individual and institutional incentives. When bankers have reason to pay attention to the true economics of their trades, they will make better trades.

By aligning incentives for traders with the long-term stability of the institution, the interests of long-term investors and the system at large are also likely to be better looked after.

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Benevolent Hackers Shoot Holes in Banking Card Systems

Weaknesses in the Classic card's security first became apparent when researchers partially reverse engineered the card's encryption system in 2007. Now a group from the Ruhr University in Bochum, Germany, has built on that work to develop a quick and straightforward method to alter the credit stored on some types of the card.

The Classic cards use 16 separate encryption keys to protect the information stored on the card. Timo Kaspar and colleagues studied the codes on one set of the cards currently in use, which are being used as a payment system by a million people in Germany. They found that each card used the same set of 16 codes and, once the team had identified them by building on the 2007 hack, Kaspar was able to alter the information stored on any card that used the system, if given access to the card.

Using a card reader built by the team, Kaspar was able to add credit to blank cards. To prove that the hack worked, he used the cards to purchase items such as coffee and ice cream. The cards only have to come near a reader to be activated, so a hacker with Robin Hood-style inclinations could hide a system in a public place so that anyone walking close enough would find that their card had magically filled up.

Read the full article here ......

Fighting poverty through microloan guarantees - Springwise

Fighting poverty through microloan guarantees - Springwise

A traditional microloan or donation of USD 100 delivers roughly that same amount to the entrepreneur in need, but providing a loan guarantee of the same amount can result in a much larger loan from a local bank, United Prosperity says as much as USD 666, in this case.

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