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Bowtie risk templates

Bowtie — Unauthorised Trading on a Proprietary Desk

Operational-risk bowtie for a proprietary trading desk: 1.85 concealment attempts a year reduced to 0.166 undetected positions, ranking the real-time hard limit block four times above any after-the-fact reconciliation and flagging the collusion path.

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Unauthorised trading position — proprietary deskHAZARDTraders holding discretionary market risk overnightTHREATSPREVENTIVE BARRIERSRECOVERY BARRIERSCONSEQUENCESReconciliation performed by thedesk assistantSegregation of duties ownedby the COO functionIndependent daily P&Lreconciliation75% · detectionConfirmation matchingwith counterparties byT+180% · detectionException report reviewed onlyat month endReal-time limitmonitoring with a hardblock85% · controlTrade capture timestampexception report55% · detectionMandatory two-week blockleave with cover60% · detectionIntraday VaR and stresslimits to the CRO70% · controlForced unwind mandateheld by risk, not thedesk60% · recoveryPrompt self-report underthe SMCR duty45% · recoveryCommitted liquidityfacility drawn in 24hours50% · recoveryPre-agreed investorcommunications plan35% · recoveryTrader booksfictitious offsettinghedges0.5/yr → 0.025/yrLimit breachconcealed throughlate booking1.2/yr → 0.081/yrCollusion betweenfront office andoperations0.15/yr → 0.06/yrLoss exceeding thefirm capital buffersev 5 · risk 0.0996Regulatory censureand manager sanctionsev 3 · risk 0.2739Client redemptionsand funding stresssev 4 · risk 0.2158Position takenoutside mandateand concealed0.166/yrtop-event frequencyTop event0.166/yrinherent 1.85/yrResidual risk0.5893inherent 22.2Risk reduction97.3%threat side 91%Barriers103 threats · 3 consequencesDominant threatLimit breach concealed through late boo…48.8% of the top eventResidual risk 0.5893 against an inherent 22.2 — the barriers remove 97.3% of it. 3 things are probably not what was meant — every path and every escalation factor was checked.Barrier criticality — residual risk if that one barrier were removed1. Real-time limit monitoring with a hard block+1.63 ×3.82. Confirmation matching with counterparties by T+1+0.355 ×1.63. Trade capture timestamp exception report+0.3515 ×1.64. Mandatory two-week block leave with cover+0.3195 ×1.55. Independent daily P&L reconciliation+0.2663 ×1.56. Intraday VaR and stress limits to the CRO+0.2324 ×1.4FindingsThreat "Collusion between front office and operations" rests on ONE barrier. Defence in depth is the claim a bowtie is drawn to make, and a single barrier is a single point of failure: the day it fails is the day the threat rea…Consequence "Regulatory censure and manager sanction" rests on ONE barrier. Defence in depth is the claim a bowtie is drawn to make, and a single barrier is a single point of failure: the day it fails is the day the consequence…Escalation factor "Exception report reviewed only at month end" degrades barrier "Trade capture timestamp exception report" and nothing is holding it off. The 55% credited to that barrier — and every figure computed from it — a…Each of the 3 consequences is credited the full top-event frequency of 0.166/yr — the model here is that one top event produces all of them, so the residual score of 0.5893 adds 3 outcomes to one event. That is right when they …

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title "Unauthorised trading position — proprietary desk"
hazard "Traders holding discretionary market risk overnight"
top "Position taken outside mandate and concealed"
unit "/yr"

threat "Trader books fictitious offsetting hedges" likelihood: 0.5 {
  barrier "Independent daily P&L reconciliation" effectiveness: 0.75 type: detection {
    escalation "Reconciliation performed by the desk assistant" {
      control "Segregation of duties owned by the COO function"
    }
  }
  barrier "Confirmation matching with counterparties by T+1" effectiveness: 0.8 type: detection
}

threat "Limit breach concealed through late booking" likelihood: 1.2 {
  barrier "Real-time limit monitoring with a hard block" effectiveness: 0.85 type: control
  barrier "Trade capture timestamp exception report" effectiveness: 0.55 type: detection {
    escalation "Exception report reviewed only at month end"
  }
}

threat "Collusion between front office and operations" likelihood: 0.15 {
  barrier "Mandatory two-week block leave with cover" effectiveness: 0.6 type: detection
}

consequence "Loss exceeding the firm capital buffer" severity: 5 {
  barrier "Intraday VaR and stress limits to the CRO" effectiveness: 0.7 type: control
  barrier "Forced unwind mandate held by risk, not the desk" effectiveness: 0.6 type: recovery
}

consequence "Regulatory censure and manager sanction" severity: 3 {
  barrier "Prompt self-report under the SMCR duty" effectiveness: 0.45 type: recovery
}

consequence "Client redemptions and funding stress" severity: 4 {
  barrier "Committed liquidity facility drawn in 24 hours" effectiveness: 0.5 type: recovery
  barrier "Pre-agreed investor communications plan" effectiveness: 0.35 type: recovery
}