Step up to the plate

Editor's Letter

Victoria Pennington

In my first letter as editor of OpRisk & Compliance, it feels appropriate that there is a growing sense that operational risk management is entering a new phase in its evolution. After a decade spent emerging from an oft-forgotten risk type into an individual discipline in its own right, op risk management has really made its mark and can confidently stand up alongside its brothers, market and credit risk. Indeed, given the shortcomings exposed during the current crisis, market and credit risk managers are now turning to operational risk managers for help in developing and applying more qualitative techniques, especially scenario analysis and stress testing, to their own models and management styles.

But rather than wait for credit and market risk teams to come to them for help, operational risk managers need to be pushing to guide the firm's process of re-evaluating risk management practices, by turning their experience of managing the wide spectrum of risks included in the definition of op risk to plug gaps in firm-wide risk management practices. Now is not the time for op risk managers to be wallflowers, sitting on the sidelines only to be rolled out from time to time by other risk types to rubber-stamp new product approvals. They must ensure their opinions are heard at the very top of the organisation by pushing for a greater voice at the board table. And op risk managers could get tougher on business managers, rather than being their friends. The friendly-friendly approach has been proven to be a mistake, risk managers need to be firm - if only in an attempt to deter the regulators from clamping down too heavily on internal controls and risk management polices. If risk managers had taken a firmer, more direct role in setting remuneration policies, regulators and politicians would not have such a strong case for imposing rules regarding compensation.

A new decade in the evolution of op risk has the potential to see radical changes in the status of the discipline, but only if it is accompanied by a new attitude from op risk managers. They must step up to take the lead in the post-crisis world and play their part in healing the broken financial system.

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