Microprudential Regulation

Patrick McConnell

This chapter will offer a range of suggestions as to how individual firms and their microprudential regulators can identify and manage systemic operational risks that may adversely impact them. Chapter 13 discussed some of the possible mechanisms for identifying when individual firms are contributing to systemic risk, such as the publication of complaints and contribution to herding. This chapter will look at how individual firms can contribute to reducing such risks. In particular, it will consider the evolution of systemic operational risks, in particular considering how new financial products evolve that can generate serious risks. The chapter focuses on the new discipline of product governance and argues that operational risk management should take a leading role in that vital process, in particular by concentrating on people risk management.

It should be noted that this chapter explores important issues, such as product governance and complaints handling, that remain largely unresolved, so the recommendations made are designed to assist in the understanding of these innovations from an operational risk perspective.¹¹   If readers are considering implementation issues, the