Operational risk management in financial institutions

M.Com. (Business Management)Financial institutions and regulatory bodies of the financial services industry have, in the last decade of the 20th century, woken up to the realisation that the risk management procedures adopted and promoted by them did not take into account all the risks to which financial institutions were exposed. The one risk category, made up by an array of risks, that has been acknowledged by financial institutions and regulatory bodies for some time, but that has not received much recognition in the risk management procedures is operational risk. This is quite ironic, as operational risk is the only 'pure" risk, i.e. the only risk with only a downside potential. Credit, market and underwriting risk, on the other hand, could result in profits if managed properly. But the losses to which operational risk exposes a financial institution can be minimised through effective risk management. Purpose The greatest obstacle in the process of operational risk management is the fact that there is no universally accepted definition of operational risk. The main purpose of this study is to perform an empirical study of the discipline of operational risk management. This includes research on the subject of operational risk management, assessing the problems experienced in the operational risk management field, considering the different operational risk strategies that exist and evaluating qualitative operational risk methodologies as well as the problems experienced in quantifying operational risk. In conclusion, a definition for operational risk is suggested, based on the research conducted