Operational Risk management is necessary for banks and financial institutions. Recently there have been many changes in the processes and regulatory requirements. These are mostly associated with the uprising in modern technology. Additionally, there has been a rise in competition amongst banks and financial institutions to ensure they provide sufficient customer satisfaction. However, the main challenges which need to be overcome include risk management as best practice.
Losses incurred due to operational risks lead to collapses of financial institutions. For instance, in the US as estimated $100 million have been reported which are due to poor operational risk management. This is why regulators of banks and financial companies have demanded for more insight and understanding for CEOs and directors.
Furthermore, financial tools like compliance Basel II, regulations and SOX ensure that businesses focus on operational risk management. Therefore, banks and financial institutions have ease and an authorization to focus on how to identify, evaluate, control and manage risks. This has made operational risk management a complex and fast growing discipline in financial institutions.
ORM is Changing the Face of Compliance
Recently there has been a change in the way banks and financial institutions have been looking at compliance. This is because operational risk management has added value to businesses and has become an important best practice. It has been predicted that in the near future there will be a marked growth in the ORM market. The following changes will be observed:
These changes affect compliance and make things better and easier for banks and financial institutions. Additionally, Basel II ensures that banks manage their capital and ensure risk management with the best of their abilities. It also encourages banks and financial institutions to ensure proper thinking and analysis to ensure best practice.
In order to ensure compliance with operational risk management there need to be significant improvements in the infrastructure of financial and banking institutions. At the same time there will be a need to improve analytical capabilities to ensure success with operational management in banks and financial institutions.