Best Practices in Operational Risk Management

Richard Cech

March 12, 2016, was a challenging day for operational risk management. The Basel Committee on Banking Supervision (BCBS) issued its proposal to replace the advanced measurement approaches (AMA) for operational risk capital estimation – originally adopted in the Basel II Accord of 2006 – with “a single, non-model based method” called the standardised measurement approach (SMA).¹¹ BCBS (2016). The Basel Committee is made up of representatives from bank supervisory authorities worldwide, some 40 institutions from 28 jurisdictions, see BCBS (2015). On the Basel II Accord, see BCBS (2006). The SMA proposal would require larger institutions to continue collecting loss event data, and explicitly encourages all banks to comply with the Principles for the Sound Management of Operational Risk (BCBS, 2014). Nonetheless, the Committee’s action opened a new chapter in the development of this still-formative discipline.

This discussion does not intend to review the specifics of the SMA proposal, nor weigh alternate methods for estimating operational risk capital, but rather to evaluate the opportunities available to operational risk management (ORM) professionals to leverage their growing body