Where Next for Op Risk Management?

The European Central Bank (ECB) has issued its 2019 SREP Report (Supervisory Review and Evaluation Process)

According to risk.net:

 “Many European lenders scored dismally on operational risk management and internal governance in the European Central Bank’s Supervisory Review and Evaluation Process last year. Of the 109 banks evaluated under the SREP in 2019, just 13% achieved a good score of one or two for operational risk. Eighty-seven per cent were assigned either the second-worst score, a three, or the very worst, a four – up from 77% in 2018. On internal governance, 82% scored a three or a four, up from 75% in 2018.”

ECB’s SREP scoring definitions:

1 = “Low” there is no discernible risk of a significant impact on the prudential elements of the group or its entities considering the inherent risk level.
2 = “Medium-low” there is a low risk of significant impact on the prudential elements of the group or its entities considering the inherent risk level.
3 = “Medium-high” there is a medium risk of significant impact on the prudential elements of the group or its entities considering the inherent risk level.
4 = “High” there is a high risk of a significant impact on the prudential elements of the group or its entities considering the inherent risk level.
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EU banks failing on op risk and governance – ECB

(Read the full article on risk.net)

We believe the key to resolving the op risk challenge is the adoption of a common, additive risk metric for non-financial risks that is underpinned by accounting standards. Only through a common, additive metric can granular exposures to non-financial risks be effectively quantified and validly aggregated. It’s high time risk managers and accountants put their heads together to take op risk management to the next level.

Peter Hughes, Chairman of the Risk Accounting Standards Board, offers his thoughts in his GARP article

Accounting’s Operational Risk Missing Link”.

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