RSK4801 study notes –
summary.
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Exam Guidelines
• Definition of Operational Risk Management
• General classification of risks
• Identify the risks/events and determine the cause in a given scenario
• Determine the impact and likelihood of identified events/risks
• Risk assessment and control strategies
• Operational risk profile
• Risk indicators – identify and give examples
• Operational Risk Management framework and ORM process
• Operational risk management policy
• Risk tolerance and risk appetite
• Risk reports
• Business Continuity Management (BCM) Concept and BCM Process
• Scenario analysis
• Biases
• Corporate governance
, lOMoARcPSD|18185775
Definition of Operational Risk Management
Operational risk is defined as loss resulting from inadequate or failed internal processes,
people and systems or from external events.
Basel Committee classification of operational risk loss categories:
o internal fraud
o external fraud
o employment practices and workplace safety
o clients, products and business practices
o damage to physical assets
o business disruption and systems failures
o execution, delivery and process management
Definition: Operational risk is the exposure of an organization to potential losses,
resulting from shortcomings and/or failures in the execution of its operations. These
losses may be caused by internal failures or shortcomings of people, processes and
systems, as well as the inability of people, processes and systems to cope with the
adverse effects of external factors.
, lOMoARcPSD|18185775
General classification of risk
Credit Risk
The risk arising from the possibility of the failure of a borrower to meet the terms of a
contractual agreement by defaulting on the payment of interest or the principle.
Market/Price Risk
The risk of losses in on and off-‐balance-‐sheet positions arising from movements in
market prices.
The risks subject to this requirement are:
-‐ The risks pertaining to interest rate related instruments and equities in the
trading book.
-‐ Foreign exchange risk and commodities risk throughout the bank.
Interest Rate Risk
Interest rate risk is the risk of a loss that an organization could suffer as a result of
adverse consequences due to fluctuations in interest rates.
(if lending => lower rates = lower profit) (if borrowing => higher rates = higher cost of
finance)
Country Risk
The risk arising from unanticipated changes in the economic or political environment in
a particular country.
Risk arises when conditions or events in a particular country reduce the ability of
counterparties in that country to meet their obligations.
Liquidity Risk
The risk that an organization may be unable to meet its financial obligations to counter
parties. This risk is reflected in insufficient funds or marketable assets being unavailable.
Legal Risk
Legal risk is the risk arising from violations of or non-‐compliance with laws, rules,
regulations, prescribed policies and ethical standards.
Non-‐compliance can expose the organization to fines, financial penalties, payment of
damages, and the voiding of contracts.
summary.
, lOMoARcPSD|18185775
Exam Guidelines
• Definition of Operational Risk Management
• General classification of risks
• Identify the risks/events and determine the cause in a given scenario
• Determine the impact and likelihood of identified events/risks
• Risk assessment and control strategies
• Operational risk profile
• Risk indicators – identify and give examples
• Operational Risk Management framework and ORM process
• Operational risk management policy
• Risk tolerance and risk appetite
• Risk reports
• Business Continuity Management (BCM) Concept and BCM Process
• Scenario analysis
• Biases
• Corporate governance
, lOMoARcPSD|18185775
Definition of Operational Risk Management
Operational risk is defined as loss resulting from inadequate or failed internal processes,
people and systems or from external events.
Basel Committee classification of operational risk loss categories:
o internal fraud
o external fraud
o employment practices and workplace safety
o clients, products and business practices
o damage to physical assets
o business disruption and systems failures
o execution, delivery and process management
Definition: Operational risk is the exposure of an organization to potential losses,
resulting from shortcomings and/or failures in the execution of its operations. These
losses may be caused by internal failures or shortcomings of people, processes and
systems, as well as the inability of people, processes and systems to cope with the
adverse effects of external factors.
, lOMoARcPSD|18185775
General classification of risk
Credit Risk
The risk arising from the possibility of the failure of a borrower to meet the terms of a
contractual agreement by defaulting on the payment of interest or the principle.
Market/Price Risk
The risk of losses in on and off-‐balance-‐sheet positions arising from movements in
market prices.
The risks subject to this requirement are:
-‐ The risks pertaining to interest rate related instruments and equities in the
trading book.
-‐ Foreign exchange risk and commodities risk throughout the bank.
Interest Rate Risk
Interest rate risk is the risk of a loss that an organization could suffer as a result of
adverse consequences due to fluctuations in interest rates.
(if lending => lower rates = lower profit) (if borrowing => higher rates = higher cost of
finance)
Country Risk
The risk arising from unanticipated changes in the economic or political environment in
a particular country.
Risk arises when conditions or events in a particular country reduce the ability of
counterparties in that country to meet their obligations.
Liquidity Risk
The risk that an organization may be unable to meet its financial obligations to counter
parties. This risk is reflected in insufficient funds or marketable assets being unavailable.
Legal Risk
Legal risk is the risk arising from violations of or non-‐compliance with laws, rules,
regulations, prescribed policies and ethical standards.
Non-‐compliance can expose the organization to fines, financial penalties, payment of
damages, and the voiding of contracts.
