Operational Risk Management
This department covers the risks associates with the day to day functioning of the banks. There are different types of operational risk, which assumes significance due to recent burst of banking frauds, technological failures including ATM heists, hacking etc.
Some of them are:
- Internal Fraud - Tax evasions, bribery
- Employment practices and workplace safety
- Health and safety
- Clients products and business practice
- Defective products and improper trade practices
- Business disruption and systems failures -Including software or hardware failures
Different sectors operate differently with its own pressures and working practices, to be successful in these areas, banks have to adhere to the risk management principles to avoid financial disruptions and violations which will in turn lead to a counter effect on the investors, creditors and other stake holders of the banks.
Risk management assumes importance considering the economic crisis in Europe, U.S., Africa and Asia. which have hit the governments, banks, creditors and more importantly the citizens of the country whose lives are struck hard by unemployment, inflation leading to public outrage and showing the poor control and regulatory measures of the central banks of respective states. Greece, Portugal, Italy are some classic examples of poor risk management compliance and control.
Use of Information Technology in Risk Management
The value of IT appears to be increasing over time to banking organisations as the environment grows more complex. IT systems and practices if properly developed and used can assist the company in risk management by providing control and compliance, monitoring technology, databases, market research, analysis and communication tools. A risk management culture can be embedded in the organization through training, communication and incentives.