E2W Member, Natalie Murray “The importance and effectiveness of Operational Risk Management in the global financial services sector.”
Katie.Dix / 26 Nov 2019
E2W Member Natalie Murray:
I am a seasoned banking professional with experience in Operational Risk Management, Internal Audit and project management, acquired from roles at top tier banks in London, New York and most recently, Singapore. This experience is augmented by successful academics - I am an award-winning MSc in Banking graduate and Chartered Fellow of the London Institute of Banking and Finance. I believe that banks need to think differently about ORM, beyond an overly theoretical framework that prioritises calculating capital and compliance-based activities, focusing instead on a positive risk management cultural ethos that is embedded across an organisation, which is why it emerged as a leading idea for a research topic.
Operational Risk Management in the global financial services sector.
This article is the abstract for a research paper by Natalie Murray titled “The importance and effectiveness of Operational Risk Management in the global financial services sector: An exploratory study”
The financial services sector continues to be dominated by failures associated with costly and high-profile operational risk incidents relating to the conduct of people, system disruptions and weaknesses in internal control processes. Failures in operational risk management (ORM) are widely acknowledged to have played a critical role in the Global Financial Crisis (GFC) of 2007 and, as a result, it became a watershed moment for the industry. The severity and type of failings that occurred forced key players to look beyond the mathematical concepts of calculating capital and recognise more consciously that it is the risk culture embedded in their people and processes, not capital, that provides ﬁnancial institutions their greatest defence against failure.
This research focuses on the evolution of ORM as a risk discipline in the financial services sector and considers how the changing landscape, a decade after the GFC, has affected attitudes, opinions and approaches to ORM in global financial institutions. A review of critical literature supports the belief that in the aftermath of the GFC there was a noticeable change in focus from quantitative operational risk to academic and industry publications considering the importance of qualitative aspects of ORM. In order to ascertain whether there had been an attitudinal change to ORM, a multiple-choice survey was developed to elicit views and opinions about the perceived importance and effectiveness, as seen through the lens of a variety of financial services professionals who may observe and experience ORM in different ways and, as such, experience different realities of it.
The research highlighted that whilst attitudes and perceptions about ORM have evolved, and most respondents consider it to be more important than a decade ago, it is a discipline in a deep state of flux as industry practitioners navigate the innumerable challenges that arise from the unpredictable behaviour of people, the unexpected nature of external events, and the rapid technological evolution that is shaping the future of the financial services sector.
My research found that several interrelated components of ORM continue to pose innumerable challenges to practitioners in their quest for effective ORM across their organisations, that go beyond a firms’ ability to calculate regulatory capital for operational risk. Issues and developments across the industry and thus across the ORM spectrum – lack of integrated frameworks, poor knowledge management processes, human and behavioural factors, ORM as a strategic risk management tool and the explosion of IT developments - have created risks and opportunities in equal measure for ORM. Understanding the uniqueness of ORM and the fact it transcends risk categories is of significance importance if the discipline is to shift from a siloed, backward looking approach and become fully integrated into the fabric of an organisation.
If you would like to discuss ORM in further detail and how the detailed research findings may help your organisation evolve your ORM approaches, please get in touch.
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