By Zenobia Sethna
According to a 2015 review of examined bank risk by the Office of the Comptroller of the Currency (OCC), operational risk has overtaken credit risk as the most important risk type, and the LIBOR scandal, product mis-selling, fraud in ETF and securities financing markets in Europe have brought it into the limelight. With further neighbouring disciplines being incorporated into and extending on from operational risk management, as any risk management course would claim, it occupies an enviable position at the core of the modern risk function.
Operational and compliance risks have become more complex and entwined, increasing the potential for failed processes that cause customer confusion and compliance control breakdowns.
Interestingly, board members and C-suite executives across industries perceive the global business environment in 2016 as “somewhat less risky” for organizations than in the past two years, according to consulting firm Protiviti.
The Protiviti survey also identified differing perceptions of the current risk environment between boards of directors and members of the executive team. CEOs and boards of directors were more optimistic about risk issues, while CFOs and chief audit executives perceived a more risky business environment. Given encouraging signs in the economy, there is a noticeable overall shift in focus from macroeconomic risks to operational risks, which had the greatest increase in risk scores compared to 2014.
So, what are the Top 10 risks currently on the minds of board of directors and executives at global firms? Internal challenges like succession, attracting and retaining talent, regulation and cyber security are drawing the most attention, according to the report.
There are growing concerns over operational risk issues, with six of the top 10 risks for CXOs now representing operational issues.
Source: Protivity and North Carolina State University’s ERM Initiative, 2015. (Click on the image to see the image clearly).
As the largest financial institutions grapple with how to better recognize, manage and mitigate losses from emerging risks, the takeaway is clear: it is imperative that organizations evolve their operational risk management practices now with future needs in mind.
This is a small taste of what you will learn in Management Development Program, operational risk management workshop on 21st to 22nd January, 2016. Learn more about the program here.
By Zenobia Sethna