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Report of the Operational Risk Committee: Evaluating Operational Risk Controls CONCLUSIONS AND FINDINGS ON THE TOPIC OF: “How should firms determine the effectiveness of their operational risk controls?” November 2001
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Introduction and Overview
Operational risk is now the focus of intense interest among industry participants, regulators and other observers. Concern has been prompted by a steady stream of significant operational risk losses at major international banks.
Of all the different forms of risk which can affect firms, operational risk can be among the most devastating and the most difficult to anticipate. However, industry participants have differed widely over many aspects of operational risk, including definitions, measurement methods, capital requirements, modeling tools and the appropriate balance of qualitative and quantitative approaches.
Amid this ongoing discussion and debate, the IAFE formed the Operational risk Committee in the summer of 2000. Its mission is to promote informed discussion among full range of participants and observers involved in the global operational risk dialogue.
To further promote this dialogue, the Operational Risk Committee selected a practical and broadly applicable topic for examination during the year 2000/2001: “How should firms determine the effectiveness of their operational risk controls?” Most firms have some form of established controls and procedures to monitor and mitigate operational risk. Accordingly, a logical next step in managing operational risk is the determination of how well these controls and procedures are in fact working relative to their intended outcomes. This topic will be meaningful to firms regardless of their individual approaches to operational risk or the ultimate form of any regulatory activity.
The Committee explored this question in several ways. A panel discussion was held at the Ninth Annual Membership Meeting and Conference of the IAFE on October 12, 2000 in New York. A roundtable discussion for the operational risk community was held in New York on March 12, 2001. An additional panel discussion was held July 3, 2001 at the Financial Engineering Symposium 2001 in Sophia Antipolis, France, which was jointly sponsored by the IAFE and the CERAM Sophia Antipolis Graduate School of Management and Technology. The results of these efforts are reported here.
INTERNATIONAL ASSOCIATION OF FINANCIAL ENGINEERS - Conference
NONE
Management
English
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