Monitoring and reporting is an important consideration with regards to operational risk.
The fundamental principle here is that senior management should implement a process to regularly monitor operational risk profiles and the material operational exposures within the bank.
They should ensure that its reports are comprehensive, accurate, consistent, and actionable across business units and products.
Appropriate reporting mechanisms should be in place at all levels from the board of directors and senior management to business unit level as well.
To this end, the first line of defense, the business unit itself should ensure effective reporting on any residual operational risks, including operational risk events, controlled deficiencies, process inadequacies, and non-compliance with operational risk tolerances to support proactive management of operational risk.
Next, we've got control and mitigation.
Banks should have a strong control environment that utilizes policies, processes, systems, and appropriate internal controls, as well as appropriate risk management and or risk transfer strategies.
Internal controls should be designed to provide reasonable assurance that a bank will have efficient and effective operations.
It will safeguard its assets, produce reliable financial reports, and comply with applicable laws and regulations.
A sound internal control program should consist of the four components that are integral to the overall risk management process, risk assessments, control activities, information, and communication, and monitoring activities.
Finally, it is vital for banks to consider information and communication technology or ICT.
Risk banks should implement a robust information and communication technology risk management program in alignment with their operational risk management framework.
Effective ICT performance and security are paramount for a bank to conduct its business properly, the appropriate use and implementation sound.
ICT risk management contributes to the effectiveness of the control environment and is fundamental to the achievement of a bank's strategic objectives.
A bank's ICT risk assessment should ensure that its ICT fully supports and facilitates its operations.
