As incidents of operational risk intensify, voices urging Asian banks to accelerate their implementation of operational risk management solutions beyond rubberstamping Basel capital requirements are getting persistently louder, says a new report from IDC Financial Insights.
To measure, monitor and mitigate risk, it is necessary for financial institutions to look beyond dependence on operational risk vendor technologies, says IDC.
The report stresses the need to invest in improving operational processes and undertake regular risk assessment exercises to ensure the existence of adequate risk coverage levels.
As operational risk is highly correlated to people risk, in addition to having the appropriate systems, solutions and processes, institutions should be cognizant of cultural attitudes towards risk, and empower managers to link risk management to long-term strategic business objectives.
“Because of the huge amount of data that flow out of an operational risk management program and the far- reaching tentacles of operational risk, projects can easily suffer all of the worst IT implementation problems," says Li-May Chew, CFA, Associate Director for IDC Financial Insights Asia/Pacific.
"This may include scope creep, too many managers, or, conversely, a lack of strong senior-level advocates. Without a strong focus and a reliable project manager, investments in operational risk
management will never produce demonstrable results."
IDC Financial Insights thus suggests the following pointers to assist institutions presently organizing their operational risk management solutions and developing their vendor management strategies to narrow down their search:
Investigate the vendors' current offerings and future expansion path: Examine the future plans of vendors to ensure that they offer tools that effectively cover an institution’s existing portfolio and also
accommodate further updates. This is crucial to ensure that the organization does not inadvertently select a solution that caters to the current risk management situation, but fails to grow with the bank in the future.
Explore vendors' footprint of reference clients; gravitate towards those dedicated to the market via continuous commitments in research and development (R&D): For instance, a substantial clientele list implies a risk management solution that is tried and tested and hence, less risky.
Consider the size of the vendor, turnover, market share and financial stability: These factors serve as indicators of their ability to remain in operations, invest funds for innovation and research, and
withstand financial catastrophes.
Take note of rankings that demonstrate end-user confidence in their risk solutions: Industry accolades and awards won by the vendor could be a barometer for innovation. However, these need to be recognition given to vendors based on objective, unbiased end-user polls. On the contrary, rankings given in lieu of advertising space in publications are not necessarily objective and should not carry the same weightage.
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