ADFIMI-IDWBE Joint Training Seminar on Operational Risk Management & Basel II

Operational risk differs from credit and market (and other specific risks) in that it is transverse in nature. The non-specific nature poses challenges in managing operational risk. Challenges include creating the suitable framework in the institution; seeking business lines and support functions and top management buy-in; collecting and analyzing data.

These challenges must be overcome to cause op risk to be appreciated within the institution as a value added function that seeks to pro-actively identify and manage risks. Under Basel 2 Accord rules, institutions can only win from implementation of advanced op risk management framework as capital required can be reduced, even when operations of the institution are complex.

This is in opposition to credit risk, where application of internal rating methods with high risk portfolio will not necessarily result in capital saving.