Operational Risk has been increasing day by day in the Nepalese Financial Sector and large risks events are taking place one after another, and it is always difficult to assess when, how and at what intensity the operational risk events occur. But the losses stemming from operational risks may erode the capital of a BFI with such a magnitude and intensity that the BFI may be left with no room for escaping from the impact, which could precipitate up to a situation of collapse. Thus, a clear understanding on operational risk and its control has been always a challenge to the management.
Now, in order to manage operational risks, BFIs formulate Operational Risks Management Policy, supported by a Standard Operation Manual/ Guideline that generally rely heavily on the internal audit function for the assurance that the policy and guidelines have been duly complied with. However, internal and/or external auditor may not always be able to capture the actual picture as they submit their report based on the sample audit and it is basically post events. Unless people involved in managing operational risk are strengthened with required skills for managing all types of risks and cultured with good corporate governance, managing operational risks will not be possible. Thus, all the respective staffs are instrumental in implementing the Operational Risk Management Policy and manual/guidelines thereon, identifying the Early Warning Signals (EWSs), Defining Key Risk Indicators (KRIs), Reporting the Risk Events for further analyzing, assessing and mitigating risk proactively.
