Regulatory fines moved into legal risk definition
Basel -- According to a source close to the Basel Committee on Banking Supervision, the concept of legal risk will be explicitly broadened in the final version of the Basel II document, due out at the end of June – to include fines, penalties and punitive damages that are a result of regulatory actions.
Originally, this was not stated explicitly by the regulators drafting the Basel II document, although the source says that they had always assumed these items would fall under the umbrella of legal risk.
Indeed, some operational risk managers view legal risk as purely the result of legal problems, with a specific focus on counterparty risk. For example, law firm Clifford Chance defined legal risk in a seminar earlier this year as "the risk that one is unable to enforce rights against, or rely on
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