Editorial: Operational risk in the regulatory spotlight

More than one speaker at the OpRisk North America conference in New York in March echoed the views of the US comptroller of the currency, Thomas Curry, that operational risk is now the most important determinant of a bank’s robustness and stability.

Operational risk is under the spotlight now – not always a comfortable place to be. As well as regulatory reform, operational risk managers face a harsher enforcement environment. The Financial Action Task Force has outlined plans to focus anti-money laundering enforcement on effectiveness in practice, rather than simply looking at the rules in place. And our annual operational risk awards recognise achievements by both practitioners and suppliers in meeting these growing demands.

Another speaker in New York noted that there’s really no such thing as a large loss event that does not have some operational risk component – he wasn’t the first to do so. Even if a major loss is classed as market or credit risk, the back story usually involves an operational risk element: failures of internal controls, undetected fraud, rogue trading or circumvention of risk limits, to take some recent examples. The regulators focusing on operational risk management are simply recognising reality. And the operational risk business should welcome the spotlight – it has, at the very least, come with healthier budgets and greater respect from business and senior management.

The challenge may, in fact, be staying in the spotlight. Assuming – and this seems a bit of a stretch at times – that at some point soon the crisis will be over, the regulatory framework reformed, and the number of billion-dollar losses per year back down into single figures, operational risk managers will then have to make the case for why they and their departments are still necessary. But that is probably still some time off.

Meet the regulators and get up to date on regulatory developments for the year ahead at the flagship OpRisk Europe conference on June 11-14 in London. For more information and details about attending visit opriskeurope.com