RSK4801 Assignment 4 Semester 2 2025 (Answer Guide) - Due 3 October 2025

RSK4801 Assignment 4 Semester 2 2025 (Answer Guide) - Due 3 October 2025 Question 1 Definition of Operational Risk Operational risk refers to the possibility of loss resulting from inadequate or failed internal processes, people, systems, or external events (Basel Committee on Banking Supervision, 2011). Unlike credit or market risk, operational risk is inherent in all banking activities and cannot be fully diversified away (ISO, 2018). It includes a wide range of exposures, such as human error, internal fraud, cyber incidents, business disruption, third-party failures, and compliance breaches (FDIC, 2023). In the South African context, the Prudential Authority emphasises that banks must adopt sound management practices for operational risk in line with global Basel standards to safeguard financial stability (Prudential Authority, 2021). Operational risk is therefore broader than transactional failures it encompasses both financial and non-financial consequences such as reputational damage, regulatory penalties, or strategic disruption (COSO, 2017). This makes it essential for banks to continuously identify, assess, monitor, and control