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Operational Risk

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16 views2 pages

Operational Risk

Uploaded by

sisayta84
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Here is an explanation of operational risk:

 Operational risk is the risk of direct or indirect loss resulting from


inadequate or failed internal processes, people and systems or from
external events or unforeseen catastrophes.
 It includes the exposure to losses resulting from the failure of a
manual or automated system to process, produce or analyze
transactions in an accurate, timely and secure manner.
 Some key points:
1. It refers to risks associated with the daily operations of a business or
organization.
2. Losses can occur due to human error, system failures, natural
disasters, fraud etc.
3. Inadequate internal processes and controls can lead to operational
losses if they are not properly designed, monitored or followed.
4. Things like technology glitches, process failures, violent crime at
company facilities all fall under operational risk.
5. Compared to market or credit risk, operational risks are harder to
measure and mitigate since they can stem from problems within an
organization's own systems and employees.
So in summary, operational risk encompasses potential losses due to gaps
or failures in an organization's people, systems and internal processes that
are part of its daily business operations and transaction processing
activities. Both internal and external factors can potentially give rise to
such operational risks and losses.
 Operational risk refers to the risk of direct or indirect losses resulting
from inadequate or failed internal processes, people and systems or
from external events. It includes the risk of losses from the failure of
systems to process transactions accurately, timely and securely.
 Operational risks exist across all of the bank's operations due to its
business strategy and functioning of internal systems like IT systems,
compliance with policies/procedures, and possibility of
mismanagement/fraud.
 As the bank becomes more reliant on technology to support its
operations, the potential failure of a technology-based system is a
growing concern in the context of operational risk management.
 Therefore, the bank has developed an operational risk management
policy to properly manage operational risk by employing risk
mitigation techniques.
 The key aims are to have a framework to identify, assess, monitor,
control/mitigate and report operational risks across the bank in a
timely manner due to its increasing reliance on technology and
systems.
 The policy outlines the bank's approach to operational risk
management through clear roles and responsibilities, risk assessment
processes, control measures, incident reporting procedures etc. to
minimize losses from operational failures or disruptions.
 This comprehensive policy helps the bank establish sound operational
risk management practices as a crucial part of its overall risk
management program.

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