Today the Institute of Operational Risk has published the sixth in its series of Sound Practice Guidance papers on the topic of External Loss Events.

The paper describes all the elements required for effective external loss events and their use in the operational risk management framework.  The paper looks in detail at the elements of external loss events, uses of external events and its use in operational risk capital modelling.

When an organisation looks only within its own four walls, or restricts its view to the closest identified peer organisations, it manages risk without using peripheral vision. As a result, it may fail to identify and address potentially catastrophic risks. The old position that "it can’t happen here" seems more redundant than ever given events over recent years. Many organisations were probably overlooking a rich source information that in the past was dismissed as not relevant. Increasingly external loss events are seen as important contributors to the operational risk framework, especially scenario analysis and risk and control assessment (RCSA).

Today the IOR has published the fifth paper in the Sound Practice Guidance (SPG) series.

Today the Institute of Operational Risk (IOR) has published the fifth in its series of Sound Practice Guidance papers on the topic of Risk Categorisation.

The paper emphasises the importance of risk categorisation despite it being an often overlooked element of a successful operational risk framework.

A workable risk taxonomy – often referred to as risk categorisation – can be regarded as the foundation upon which an effective operational risk management framework is constructed. Without this common frame of reference for risk information there will be no clear basis for monitoring, reporting, or meaningful action.

The guidance paper highlights the benefits of a well-designed and properly implemented categorisation framework; explores different approaches to categorisation, the implementation of the framework and a number of challenges involved, together with solutions drawn from the practical experience of a variety of organisations.

Risk Categorisation addresses the approach to risk categorisation being fundamental to the effective management of operational risk. Read more here

The full SPG series may be found here.  Risk Categorisation and the remainder of the series will be available to members only.

The proposals outlined by the Vickers Commission are unlikely to prevent future financial crises, according to the Institute of Operational Risk (IOR).

Edward Sankey, Chairman of the Institute, said: “We are concerned that the Vickers Commission are proposing economic solutions to what they believe are economic problems. However the IOR believes that the root causes of the financial crisis were failures in people, processes and systems, which are the targets of operational risk management.”

This report proposes a variety of measures to help prevent future crises, including some contentious structural reforms (the ring fencing of retail and investment banking assets) coupled with significantly increased capital requirements.

The Commission argues that by ring fencing assets and increasing capital requirements, it will help to reduce the risk of future bank failures/bail-outs. Especially in the case of conglomerate banks, which combine retail and investment banking, whose retail assets (i.e. those derived from household/small business savings) will be protected from any losses that their investment banking arm may incur.

As with previous years, the IOR were happy to be a sponsor of the prestigious Business Continuity Industry Awards, held at the London Hilton Hotel, Park Lane on 25^th May.  There were in excess of 550 attendees and the Institute presented the award for the Business Continuity Initiative of the Year to Business Risk & Resilience XGen.

HQS Wellington, London was the venue for the IOR Annual General Meeting and Annual Dinner on Thursday 24 March 2011.

Members attending the AGM heard the Chairman Mr Edward Sankey reported on further strong growth in membership, increasing at about 48% per annum over the last two years with new chapters in Scotland and Hong Kong and the expectation of opening further chapters this year.

Operational risk raises profile in Germany

Which operational risk lessons did we learn after the crisis? Or is it better to ask: which did we not? Alan Peachey`s book “Great Financial Disasters of our Time” has, with its new edition, more than doubled the number of pages. Why will operational risk management in future be even more challenging?

Greed and corruption, rogue traders and natural catastrophes got the attention of operational risk professionals from across Germany who this week in Frankfurt am Main launched an organisation dedicated to strengthening their ability to reduce the likelihood and impact of these threats on business/financial services.