United States

Measuring and reporting operational process risk

Utilizing risk management as the first line of defense


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Compliance with the process reporting requirements of Basel III and the Advanced Measurement Approach can require data aggregations that result in over 1 million reporting variations. Financial institutions struggle with collecting meaningful data used as the first line of defense and controlling like processes across the organization. Institutions must start at the raw data level to be flexible and facilitate risk mitigation at the process level and summarize risk to spot trends across like processes.    

In January 2013, the Bank for International Settlements (the organization responsible for Basel III) issued the “Principles for effective risk data aggregation and risk reporting.” This guidance focuses on managing and reporting operational process risk, with an implementation period of 3-6 years, depending on the size of your institution. Compliance with the 11 principles is a challenge, but effective implementation increases business value, while simultaneously helping ensure regulatory compliance.

The current state of measuring and reporting operational risk involves several critical issues, including:

  • A patchwork of regulatory compliance measurements and reporting within financial institutions
  • A fragmented operational risk measuring and reporting environment with a proliferation of dispersant controls
  • An environment of unclear accountability
  • Predominantly reactive systems for measuring risk
  • Increasing numbers of specialized products and information technology (IT) systems

Implementing an effective operational risk measurement and reporting system aggregates risk from the bottom up, and ultimately requires less data to manage risk. Utilizing dashboards and flash reports and implementing a defined structure are also two key processes to manage and mitigate risk. Adopting a comprehensive strategy that manages process operational risk implementations at the first line of defense helps increase your business value and manage your compliance demands.






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