The Office on Financial Research and Operational Risk

Abstract

We argue that the single largest operational risk (OR) for the Office of Financial Research (OFR) is to be inundated with indecipherable financial contract data. Clear semantics on the attribute level alone is not sufficient for risk avoidance; the OFR needs a semantic system capable of describing the entire intent of the financial contract. We introduce the concept of Contract Types (CT), which encapsulates this semantic. The idea of CTs overrides the cherished yet unexamined separation of data and algorithms, which lies at the core of the observed data chaos in banks. We distinguish the mechanical parts of finance, where separation is counterproductive, from the subjective parts, where a separation makes sense. We conclude with a model that contributes to an operational OFR.