Operational Risk Governance

Risk governance is the architecture within which risk management operates in an organisation. It will reflect, and seek to sustain and evolve, the organisation’s risk culture. Since risk management is fundamental to running any business, risk governance is a fundamental part of corporate governance. The British Standard BS13500 defines governance as: ‘system by which the whole organization is directed, controlled and held accountable to achieve its core purpose over the long term’. The UK Corporate Governance Code states that ‘good governance should facilitate efficient, effective and entrepreneurial management that can deliver the long-term success of the company’. Good risk governance should result in risk being accepted and managed within known and agreed risk appetites.

As shown in the IOR website diagram on Sound Practice Guidance, governance sits at the top providing the basis for direction, control and accountability. However all the subjects covered within the SPGs should be considered when setting up or working within an operational risk management environment.

Risk governance should put in place a structure of risk responsibility throughout the organisation. As a result, everybody in the organisation will be aware of their own risk responsibilities and accountabilities and those of others with whom they work. Governance delivers effective accountability, including the accountability of the governing body to its owners.

Risk governance is an integral part of the day to day running of the business and is not about just complying with a set of rules. Since operational risk management involves everybody in the organisation, the risk governance framework should encompass everybody. That means that it can only operate successfully if there are clear and effective lines of communication both up and down the organisation and a culture in which good and bad news is allowed to travel freely.

This update in 2015 to the Operational Risk Governance Sound Practice Guidance paper originally developed in 2010, builds on the original paper, providing updates to the work, including reference and support to the published British Standard on Governance BS 13500. Governance is a word often used or misused in relation to the overall Leadership of an organization and this SPG looks to help Operational Risk Professionals to deliver effective Risk Governance in their organization.

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