Chapter 11

Risk Governance

Learning objectives

After studying this chapter, you should be able to:

1 Identify, describe, and analyse the principles for sound operational risk management identified by the Basel Committee for Banking Supervision, with a particular emphasis on Principles 1, 2, 3, 4, and 5

2 Outline and critique the elements for sound risk management put forth by the HKMA

3 Consider an appropriate structure of corporate governance necessary for sound operational risk management, including the uses of specialized committees and internal controls

4 Discuss the interaction between RCSA, KRIs, and operational risk events and how this interaction helps banks and other AIs limit operational risk


Strong internal governance is at the heart of an effective operational risk management framework. Regulators around the globe have put considerable emphasis on how the operational risk management framework should fit within the structure of a bank’s corporate governance to effectively control and mitigate risk. Much of this emphasis comes from the work done by the BCBS, which in its Basel II documents outlines a series of principles that banks should follow in developing their operational risk management framework. The BCBS puts forth eleven principles in its 2011 document, Principles for the Sound Management of Operational Risk. The first five of these principles place particular emphasis on this topic.

High up on the discussion is the role that management plays in ...

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