Banking Information System

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Audit & Compliance in IS
Lecture VII: Financial services vs. Production and retail businesses. Retail banking and insurance: core business processes. Banking information system.

1

Session objectives
Upon the end of the session students should be able to:  Discuss financial services and typical business processes  Describe the value chain in a retail banking and an insurance client  List the key sub-processes in financial business processes  Understand the activities and financial risks in the FS industry

2

Recap
Explain the links

3

Question:
What is the distinctive feature of financial services industry?

4

5

6

7

Deposits
Account opening Deposits Withdrawals Interest calculation & payment Standing data

Account Opening
◦ Money laundering, proceeds of crime and fraud are a risk to any bank ◦ At the account opening stage identity verification is vital ◦ Many laws and regulations so there’s likely to be a large compliance element to the account opening process ◦ Need to think about sales channels branch/postal/internet etc

Deposits
Customer deposits money Bank records deposit
How much? Which account?

Bank holds money

Telephone ATM Mail

THEFT LOSS

Internet

MONEY LAUNDERING

Withdrawals
Request for withdrawal Verify identity Check funds & Terms & Condition s Withdraw money & update accounts

Telephone ATM Mail

THEFT LOSS

Internet

MONEY LAUNDERING

Interest
Calculate interest Apply interest to accounts

Incorrect calculation and recording of interest

= Incorrect financial statements & reputational damage
Restricted Access Change controls

Loans
Operating processes Customer deposits 4 1 2 Perform Design planning & products management & services 3 Market & sell 6 Manage assets & investments

5 Loans to customers

Loans – sub-processes subApplication Arrangement and disbursement Collections Arrears Interest Standing data

Loans - Risks


What are the risks to the bank in a loans cycle?

Loans exceed deposits

Deposits

Loans

Loans - Risks


What are the risks to the bank in a loans cycle?

Loans are not profitable
New Customers

X

Product profitability

Prime vs sub-prime lending
Risk of default

Sub-prime lending Prime lending Typical interest rate %

Loans - Risks


What are the risks to the bank in a loans cycle?

Customers default on payments

Bad debts
Customer 8105729 7194750 8309579 3401895 3895015 2939589 8375913 Date 2/5/6 4/5/6 1/7/6 2/7/6 2/7/6 6/8/6 7/8 Value 1239 529 185 84 839 1

Loans - application
Customer Application

Decision

Loans > deposits Fraud & theft Bad debts

Account set up and disbursement
Obtain loan agreement Set up customer account Disburse payment Calculate balance & set up collection schedule

Collections
Collect payment Apply to customer account Calculate balance

Payment defaults
Identify Payment defaults Apply charges Recover arrears Calculate provisions

Interest
Calculate interest Apply interest to accounts

Incorrect calculation and recording of interest

=

Incorrect financial statements & reputational damage Restricted Access Change controls

Standing data maintenance
 

Customer standing data and Product standing data
Customer Account Type of account Terms & Conditions Customer details

Product Standing data

Transactions

Customer standing data

Exercise


What are the financial and non-financial risks associated with customer and product standing data in a retail bank? Think of some potential controls that could be Implemented to mitigate those risks



Standing data controls


Control themes:

◦ Restrict access to standing data to only those people who need it as part of their day to day duties, which should be separate from those people with access to transactional data ◦ Report changes to standing data and perform an independent check to ensure all changes are valid and...
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