Operational Risk explained:
Legislation within the EU requires that firms are able to sufficiently manage and mitigate their operational risk, but what is operational risk?
Operational risk is essentially the risk of losses for a firm that originate from inadequate or failed internal processes, systems and people or from external events.
Whilst operational risk also includes legal risk, it excludes reputational risk and is a risk that rooted in all banking activities and products.
Given the increased complexity and globalisation of the financial system, and I particular given some firms unprecedented large losses ,operational risk has acquired greater relevance in recent times.
What is Operational Risk?