Op risk appetite: Do firms have a balanced diet?

With some operational risk managers not even in agreement as to the correct definition of op risk appetite, the topic seems to be one of the least well-managed in the industry. But understanding your firm’s op risk appetite is an essential ingredient for success

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Financial services firms are still struggling to adequately set and manage operational risk appetite. Although there is no formal requirement under Pillar I of the Basel II Accord for firms to submit a statement of appetite for op risk, under Pillar II regulators are looking for banks to give an indication of their defined appetite and tolerance in this area. If a firm does not set an op risk appetite, it would be very difficult for it to pass the ‘use' test by demonstrating to regulators that

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