Revisions to the Principles for the Sound Management of Operational Risk (BCBS)
In March 2021, the Basel Committee on Banking Supervision (BCBS) published its Revisions to the Principles for the Sound Management of Operational Risk (PSMOR). The principles were introduced in 2003 and subsequently revised in 2011 to incorporate the lessons from the Great Financial Crisis. The 2021 revisions resulted from a 2014 review that indicated that several principles had not been adequately implemented and did not sufficiently capture certain important sources of operational risk.
Principles for Effective Risk Data Aggregation and Risk Reporting (BCBS)
One of the most significant lessons learned from the global financial crisis that began in 2007 was that banks’ information technology (IT) and data architectures were inadequate to support the broad management of financial risks. Many banks lacked the ability to aggregate risk exposures and identify concentrations quickly and accurately at the bank group level, across business lines and between legal entities. Some banks were unable to manage their risks properly because of weak risk data aggregation capabilities and risk reporting practices. This had severe consequences to the banks themselves and to the stability of the financial system as a whole.
Principles for Operational Resilience (BCBS)
In the years that followed the Great Financial Crisis (GFC) of 2007–09, the Basel Committee’s reforms of its prudential framework have enhanced the supervision of the global banking system and resulted in a number of structural changes to strengthen banks’ financial resilience. While significantly higher levels of capital and liquidity have improved banks’ ability to absorb financial shocks, the Committee believes that further work is necessary to strengthen banks’ ability to absorb operational risk-related events, such as pandemics, cyber incidents, technology failures and natural disasters, which could cause significant operational failures or wide-scale disruptions in financial markets. In light of the critical role that banks play in the operation of the global financial infrastructure, increasing their resilience would provide additional safeguards to the financial system.
Minimum Capital Requirements for Market Risk (BCBS)
This document sets outs the amended minimum capital requirements for market risk that will serve as the Pillar 1 minimum capital requirement as of 1 January 2022, replacing the current minimum capital requirements for market risk as set out in Basel II1 and its subsequent amendments.
Corporate Governance Principles for Banks (BCBS)
Effective corporate governance is critical to the proper functioning of the banking sector and the economy as a whole. Banks perform a crucial role in the economy by intermediating funds from savers and depositors to activities that support enterprise and help drive economic growth. Banks’ safety and soundness are key to financial stability, and the manner in which they conduct their business, therefore, is central to economic health. Governance weaknesses at banks that play a significant role in the financial system can result in the transmission of problems across the banking sector and the economy as a whole.
Spot Risks Early by Aligning Enterprise Risk Management Components
Proactively spotting risks requires aligning early warning systems (EWS), key risk indicators (KRIs), risk appetite, and risk tolerance. This integration enables organisations to monitor threats, act swiftly, and stay within strategic boundaries. Benefits include proactive risk management, cost savings, enhanced decision-making, stakeholder confidence, and adaptability to emerging risks, ensuring resilience and growth.