2 - Defining operations risk in investment and retail banking

Abstract

Banking is a term that no longer signifies such a straightforward and obvious process. Most people associate banking with their own financial management and so, the retail-banking sector of the financial markets is more widely recognized and understood than the banking activity that today is known as investment banking. In retail banking, there are many potential operational risk scenarios and many of these are operations-related. In operational terms, the risks most likely to occur are within the processing and the customer contact areas. Failures in procedures will be the probable root cause of risk events and yet many banks operate on a basis of fairly autonomous yet very much interlinked structures, where there may be both unique and common procedures in operation. Principal operational and operations risks in investment banking concern: structure of the investment bank, extent of global market coverage, activity and client base, the complexities of the products, processes and procedures employed, extent and level of technology available across the business, the competency of the management and personnel, and the direction of the senior management. As an investment bank is a very complex business, the operations functions are also highly complex and can be aligned on a business basis i.e. silo or across the businesses in a single operational function of division.