“Operational risk management presents banks with a dilemma. On the one hand, during recent years they have been under tremendous pressure to cut costs. On the other, there is equal pressure to upgrade systems and revamp core technologies to meet the more exacting requirements of the modern regulatory agenda. Caught between these two opposing forces, banks run the risk of fines for inadequate risk management, as numerous examples testify.
According to the European Banking Authority, European Union legislation requires that institutions adequately manage and mitigate operational risk, which is defined as the risk of losses stemming from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risks but excludes reputational risk and is embedded in all banking products and activities.’
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