Magazine article The RMA Journal

Operational Risk: Moving along the New Frontier

Magazine article The RMA Journal

Operational Risk: Moving along the New Frontier

Article excerpt

The focus of this month's Journal is operational risk management, a key component of enterprise risk management. While banks of all sizes have always managed their operational risk, the practice of operational risk management is still relatively young. Operational risk was not established as a separate risk class until the 1990s. Basel II provided the momentum for much of the effort to capture operational risk data, of which little existed until the late 1990s. Today we recognize that operational risk management is more than a regulatory compliance effort. It has the potential to deliver true business value if those risks can be measured and managed in a way that either mitigates losses or prevents them altogether. All banks can certainly benefit from a more formalized approach to managing their operational risk.

Challenges remain, of course, and they are abundant. Before the industry can actually begin to manage operational risk, practitioners must deal with uncertain regulatory requirements, skepticism from management about the value of the discipline, insufficient data, and untested models.

RMA organized its Global Conference on Operational Risk (GCOR) in New York during March to address those challenges. About 350 operational risk practitioners from institutions in 22 countries attended GCOR to learn from each other and to share ideas about where the industry is headed as it tries to manage this important risk.

This issue of the Journal includes some highlights of GCOR and includes presentations that illustrate how leading practitioners at major institutions are addressing the many challenges and opportunities in the operational risk discipline. …

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