Increasingly, regulators are focusing not just on the directly regulated entity but moving to the regulation of the value chain: looking through the regulated entity to the suppliers.
With the increased use of outsourcing and third party suppliers, IT takes on a greater significance when assessing the operations risk profile and the related capital reserves required for a financial institution. It should be noted that Basel II allows a maximum of only 20% of operations risk to be hedged through the use of insurance; the rest needs to be in the financial institutions’ capital and plan for regulator reserves. Basel III does not specifically focus on operational risk BUT regulators will look at total capital (of which operational risk is a key component) across the institution and its suppliers.
Burnt Oak Partners can help you identify the key components of risk assessments as seen by the regulators and ratings agencies, to cover the following areas:
- political risk
- operations risk
- data privacy and security risks
- business disruption and system failures (business continuity ability)
- damage to physical assets
- internal and external fraud
- employment practices and workplace safety
- client products and business practices
- outsourcing and third party suppliers
- regulatory risks
- strategic risks
- composite risks