Operational Risk is a tricky highway, what does the Next 'T-Junction' look like for you?

This phase in our lives will go back in time as a critical phase in the shaping of the new normal for Operational risk. The decisions we take today impact the global industry for many years to come. The question that arises now is what does this mean for the way we look at Operational risk and what needs to change. I want to explore some themes here:

• 'I have everything I need to manage Operational risk' - this is the first comment one hears when meeting a number of clients…the more experienced CROs and OR Heads will of course be more candid and forthcoming as they are keen to get your perspective and insights. Blending the 'Inside-out' with the 'Outside-in' helps provide a more balanced and 'real' basis for firms to understanding meaningfully where they stand in their journey and what needs to be done.
• Inside Out View - The strong internal focus by influencers and decision makers on the internal politics, biased views on where money should be spent, why we don't need to spend money when losses are low, why we don't need to train our people or review adequacy and skill sets when business is charting out its growth plans, etc, ….all exhibit the characteristics on an 'Inside-out' approach. In a number of local, regional and foreign firms I deal with, unfortunately this comes out very strongly, some directly, some indirectly. Through the sixth sense acquired during my 21 years of industry experience I have learnt to understand this.
• A good way to look at this:
• Driving a car from the tropics during winter on road covered with snow is indeed ….a very slippery and dangerous prospect. Do we know what the forecast is and have you changed the tyres, ensured the driver is experienced enough and carrying enough fuel and water for the journey?
• You need to be 'fit-for-purpose'.
• Just because the regulator is not banging on your door does not mean you need to let risk management get complacent. Just because you have been voted as the best bank in your region does not mean you cannot fall.
• Be on your toes, have a candid discussion to see whether you have what it takes to support your business going forward. If you can’t do this with confidence, you know what you need to do.

What is worrying is the lack of visible appreciation and discussions around the areas of change required. What has been happening at the regulatory end is – discussions around Operational risk capital, data on losses incurred……..but there is more to Operational risk than just these key components. Have we got enough clarity on the end game here? That may be a good place to start.

The next 'T-Junction' is approaching fast. Do you know your destination and the route you are going to take? It's a slippery road. Be careful. 

I see some established players undecided too.

I see some who took a few steps forward in one direction but are retreating. 

I do however see a few, who after pausing for a few days have taken a route and are confident.

The traffic wardens are trying to understand who should manage which route and what they should expect.