Operational Risk Management: regulatory framework and operational impact

Banks must establish an independent Operational Risk Management function aimed at defining policies and procedures related to Operational Risk Management and control. Moreover, said function must be able to implement methodologies for measuring and reporting the institution’s system, and develop strategies for identifying, measuring, monitoring and controlling operational risks. The internal measurement system must be closely integrated in the bank’s daily Operational Risk Management process. Besides, the management processes and the operational risk measurement system are subject to periodic reviews carried out by internal and/or external auditors. In this perspective, the aim of this chapter is to analyse: • he regulatory framework on the operational capital requirement; • the regulatory view on Operational Risk Management; • the new Supervisory Review and Evaluation Process (SREP) in relation to operational risk. This chapter also attempts to propose an integrated approach able of defining, managing, monitoring and reporting operational losses together with capital planning, ICAAP (Internal Capital Adequacy Assessment Process), RAF (Risk Appetite Framework) and risk culture of financial intermediaries also in accordance with the new SREP perspective.