Operational Risk Management, 2nd Edition

CHAPTER 6Policies and Procedures

This chapter explores the important role of strong policies and procedures in an effective operational risk framework. It also considers the role of standards and guidelines documents. Example content is provided for an operational risk policy, as well as samples from procedures, standards, and guidelines.

THE ROLE OF POLICIES, PROCEDURES, GUIDELINES, AND STANDARDS

In recent years, financial services firms have embraced the importance of having clearly articulated and consistently documented policies, procedures, standards, and guidelines. These written documents serve to articulate the firm's interpretation of rules and regulations and their chosen approach to meeting those requirements.

Investors and third parties often request these documents when engaging with a bank or fintech.

It has become clear that it is necessary to have objective goals against which to measure performance. Well-documented policy and procedure documents can help meet this need. Firms have also learned the sometimes painful lesson that good documentation is needed in order to demonstrate that regulatory requirements have been incorporated into the business processes of the firm.

Policies and procedures form an essential foundation for a successful operational risk framework, as is illustrated in Figure 6.1.

As well as continuously improving the content of such documents, many firms have sought efficiency improvements for their documentation. The rapidly increasing ...