Professional Operational Risk Manager (ORM) Designation

Updated August 2022

Reference Resources

The following references are being used to develop the Professional ORM Designation exam program. Candidates are responsible for securing copies of the resources they feel are necessary to study from. 

Reading List*

Individuals seeking the Professional ORM Designation should consider the following reading list and how each will help them best prepare for the exam program.

*This reference is not complete nor comprehensive. As the item development working group completes its work to create an initial question pool for 2022, the list will be updated and published for all current and future candidates to use in preparation for the exams.

  • Ashby, Simon. Fundamentals of Operational Risk Management: Understanding and Implementing Effective Tools, Policies, and Frameworks. KOGAN PAGE, 2022. ISBN 1398605026
  • Birindelli, Giuliana, and Paola Ferretti. Operational Risk Management in Banks: Regulatory, Organizational and Strategic Issues, Springer, 2017. ISBN/EAN 1137594527, 9781137594525
  • Camilleri, Mark Anthony. Corporate Sustainability, Social Responsibility and Environmental Management: An Introduction to Theory and Practice with Case Studies. Springer International Publishing, 2018. ISBN/EAN 3319836005, 9783319836003
  • Chapelle, Ariane. Operational Risk Management: Best Practices in the Financial Services Industry. John Wiley & Sons, 2019. ISBN/EAN 1119549043, 9781119549048
  • Crouhy, Michel, Galai, Dan, and Mark, Robert. The Essentials of Risk Management, Second Edition. McGraw-Hill, 2014. ISBN/EAN 0071818510, 9780071818513
  • Girling, Philippa X. Operational Risk Management: A Complete Guide for Banking and Fintech. Wiley Finance: 2022. ISBN/EAN 1119836042, 9781119836049
  • Grimwade, Michael. Ten Laws of Operational Risk: Understanding its Behaviours to Improve Its Management. John Wiley & Sons, Incorporated, 2021. ISBN/EAN 1119841380, 9781119841388
  • Howitt, Jonathan (Ed), Professional Risk Managers’ Handbook Series: Risk Management Frameworks and Operational Risk, Volume III, Book 1. Northfield, MN. PRMIA, 2015. ISBN13 9780976609780
  • “H.R.3763 - 107th Congress (2001-2002): Sarbanes-Oxley Act ...” Accessed February 4, 2022. https://www.congress.gov/bill/107th-congress/house-bill/3763 .
  • Pompon, Raymond. IT Security Risk Control Management: An Audit Preparation Plan. Apress, 2016. ISBN/EAN 1484221400, 9781484221402
  • “COBIT: Control Objectives for Information Technologies.” ISACA. Accessed February 4, 2022. https://www.isaca.org/resources/cobit .
  • COSO Framework, Guidance. https://www.coso.org/SitePages/Guidance.aspx.
  • “Risk Review - 2021.” FDIC. https://www.fdic.gov/analysis/risk-review/2021-risk-review.html.
  • “Risk Review - 2022.” FDIC. https://www.fdic.gov/analysis/risk-review/2022-risk-review.html.
  • Tipton, Harold F., and Micki Krause Nozaki. Information Security Management Handbook. Boca Raton: Auerbach, 2019.

*This reference is not complete nor comprehensive. As the item development working group completes its work to create an initial question pool for 2022, the list will be updated and published for all current and future candidates to use in preparation for the exams.

Standards and Practices

Candidates for the ORM Designation program should be knowledgeable of the following standards. The application of these standards in real world situations will be assessed as part of the ORM Designation exam program.


PRMIA Institute Papers

PRMIA Case Studies

The following PRMIA case studies have been identified by the PRMIA Education Committee as being important for the ORM Designation Pilot Examination.

Additional case studies will be published on an ongoing basis for the ORM Designation examination program. Current ORM Designation candidates will receive notification via email from [email protected] for all updates study materials.

Case Studies

Barings Brother

  • Unauthorized trading in derivatives by Nick Leeson in its Singapore subsidiary completely wiped out the bank’s capital of £200 million
  • Failures: No segregation of duties. Internal audit report not heeded. Doubts raised by Singapore Futures Exchange (SIMEX) ignored. Excessive profits not investigated.
  • Summary: Barings Brothers, a venerable London institution, was plunged into bankruptcy in February 1994 due to the actions of a rogue trader from the Singapore office named Nick Leeson. Due to managerial failures, Leeson was in charge of both the front and back offices, leaving him without supervision. At first he made large profits for the bank, but losses soon followed. He secreted these losses away in a bank account named 88888.

    Leeson gambled on an increase in the markets to make up for his losses. But the large Kobe, Japan earthquake on January 17, 1995 caused the stock markets to fall, and the losses he had incurred quickly rose. In February 1995 Leeson fled the country. Three days later Barings Brothers was forced into bankruptcy. Leeson went to prison for fraud.
Wells Fargo
  • Reputational risk related to unauthorized policies
  • Summary: The financial crisis of 2007/2008 began in the United States due to the collapse of the housing market. Subprime mortgages issued by numerous financial institutions, including Wells Fargo, fueled the housing market crash, leading to an economic downturn called the Great Recession, and threatening to destroy the international financial system. Federal government agencies have fined Wells Fargo about $3 billion for their behavior in the crisis, which also included defrauding the Federal Housing Administration (FHA) to insure improper mortgages.

    In 2016, a Senate committee grilled top Wells Fargo executives about their actions in a scandal involving the creation of at least 3.5 million bank accounts without their customers knowledge or agreement, leading to improper fees, deleterious credit reports, and misuse of private information. In early 2018, citing dissatisfaction with Wells Fargo’s progress in reforming its risk controls and leadership, the Federal Reserve ordered Wells Fargo to limit its assets to $1.95 trillion. As of September 2021 the bank has been issued more than $5 billion in fines and penalties by the government.

    While Wells Fargo has made numerous steps to redeem its behavior, including management changes, centralizing their financial system, and rebranding, its involvement in other scandals that continue to be revealed. Regardless of this, Wells Fargo continues to be highly profitable and ranked as one of the US’s largest companies.
Citibank
  • Transaction processing - 900M payment made due to manual errors
  • Summary: Citibank agreed to serve as the Administrative Agent for a syndicated loan for cosmetic company Revlon in 2016 for the loan amount of $1.8 billion. On August 11, 2020, Citibank intended to wire Revlon’s creditors an interest payment of $7.8 million. Instead, due to human error, it wired the full amount of the loan’s balance, about $900 million to the creditors. After requesting a return of the funds, ten of Revlon’s lenders kept the payment, arguing that it was due to them due to the loan’s terms.

    Citibank took the creditors to court and on February 16, 2021, lost the ruling, which stated that a previous case had set precedent for whether the mistaken overpayment should be returned. That case required that the lender’s were due a bona fide debt, which they were. Citibank, therefore, lost a total of about $500 million to this error.
Deutsche Bank
  • Weak risk management practices
  • Summary: In 2016, a German court found seven Deutsche Bank former employees guilty of tax evasion due to their participation in a VAT-tax refund carousel trading scheme involving carbon emissions trading certificates. One employee was sentenced to three years in prison while the others were fined or given suspended sentences.

    The scheme involved carbon emissions credits being purchased from a country without VAT, then transferred to certain intermediary companies before being disposed of outside Germany. The final business in the chain would then claim a VAT tax refund even though the tax was never paid in the first place.
JP Morgan
  • See Chapter 15, Box 15-1, "Model Risk and Governance: The London Whale", in The Essentials of Risk Management, Second Edition.
  • “London Whale” trades executed by traders in JP Morgan's London office
  • Summary: In 2012, JPMorgan Chase lost $6.2billion from exposure in what its Chief Investment Office called a "Synthetic Credit Portfolio (SCP).” The complex set of synthetic credit derivatives resulted in losses from "whale trades" (trades with unusual amounts of profit).

American Insurance Group (AIG)

  • Severe losses due to investments in subprime mortgages through credit default swaps
  • Summary: During the financial crisis of 2007/2008, American Insurance Group (AIG) suffered severe losses due to investments in subprime mortgages through credit default swaps, and wavered on the edge of bankruptcy. The US government determined that AIG’s failure would create a domino effect that would seriously harm the US economy. The government, through the Federal Reserve of New York, bailed out the company with a commitment that started with an $85 billion loan and a 79.9 percent equity stake in the company.

Enron

  • Role of the board and governance in shareholder safety
  • Summary: Once lauded as “America’s Most Innovative Company,” Texas-based energy trading company Enron enjoyed considerable success in the late 1990s, but by the end of 2001 they had plummeted into disgrace and bankruptcy. Founded by Kenneth Lay, Enron pivoted from supplying natural gas to acting as an intermediary between natural-gas customers and its producers. The establishment of web-based trading division Enron Online also brought in considerable revenue.
    Increased competition led to executives Jeffrey Skilling and Andrew Fastow to hide Enron’s decline in profits by using mark-to-market accounting and special purpose entities (SPEs). Prestigious audit firm Arthur Andersen did not raise the alarm, and by October 2001 the Securities and Exchange Commission opened an investigation into Enron’s business practices, eventually charging many Enron executives with fraud and conspiracy, and convicting Lay, Skilling, and Fastow of wrongdoing.
    When Enron filed for bankruptcy it devastated the 401(k) retirement savings of its employees and investors, and led to the establishment of the Sarbanes-Oxley Act to prevent similar behaviors by other publicly-held companies.

Lehman Brothers

  • Liquidy risk related to bundled mortgages and developing new financial products
  • Summary: During the financial crisis of 2007/2008, subprime mortgages fueled the housing market crash, which led to an economic downturn called the Great Recession, and threatened to destroy the international financial system. Lehman Brothers invested aggressively in mortgage-backed securities which included subprime mortgages. From 2005 to 2007 the firm reported record profits, and it became the fourth-largest investment bank in the United States. When the housing market made a sharp downturn in 2007 as housing prices fell and homeowners’ mortgages outpaced what their homes were worth, Lehman Brothers failed to mitigate its high degree of leverage. Lehman Brothers declared bankruptcy on September 15, 2008. Its corporate bankruptcy was the largest in US history, with assets totaling $639 billion, and liabilities totaling $613 billion.

Long-Term Capital Management (LTCM)

  • Liquidity squeeze of a major hedge-fund via margin calls on trading positions
  • Summary: In the 1990s, Long-Term Capital Management (LTCM) functioned as the largest hedge fund in the United States. It was founded by well-known Wall Street traders and Nobel prize-winning economists. The extreme success LTCM found from 1994-1998 attracted $1 billion plus in investor capital, and yielded fantastic returns for several years from its arbitrage strategy. This put it in the “too-big-to-fail” category. In 1998, LTCM’s leveraged strategies failed due to Russian debt default, and the US government intervened to coordinate the fund’s bail out rather than risk a global financial crash. The bailout involved creating a loan fund from a group of Wall Street banks, and it succeeded in bailing out LTCM and liquidating the fund without further issues. Lessons learned from LTCM’s crash were not adequately applied, and some of the same forces contributed to the September 2008 near-collapse of the U.S. financial system.

Washington Mutual

  • Late entry into the subprime market combined with acquisitions
  • Summary: Founded in 1890, Washington Mutual Bank (also known as WaMu) gained a reputation as a conservative institution. It expanded over its 100 plus year history until in 2007 it boasted $188.3 billion in deposits, 2,200 branch offices in 15 states, and more than 43,000 employees. But by 2006 they had begun to engage in aggressive investment in mortgage-backed securities which included subprime mortgages. The housing market’s sharp downturn in 2007 occurred as housing prices fell and homeowners’ mortgages outpaced what their homes were worth. Shares dropped precipitously, and after the bankruptcy of Lehman Bros spurred a 10-day run on WaMu bank branches, they entered bankruptcy on September 25, 2008, with roughly $307 billion in assets.

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