New Chartis Report Reveals That 98% Of Operational Risk Losses Are Due To Conduct Risk


27 May 2015

Chartis, the leading provider of research and analysis on the global market for risk and compliance technology, has issued its latest report on operational risk management solutions for the financial services industry.

The report provides details of analysis by Chartis revealing that 98% (by value) and 82% (by frequency) of the top 50 operational risk loss events in the global financial services industry over a 12-month period (from March 2014) related to suitability or fiduciary failures and improper business or market practices. The root causes of all of these events were linked to misconduct and human factors.

The report also highlights the results of recent Basel Committee reviews of operational risk management practices of 60 systemically important banks in 20 jurisdictions revealing that “banks have made insufficient progress” in implementing the requirements introduced in 2003 and revised in 2011.

“It is clear to us at Chartis that the traditional static and checklist based approaches to operational risk management are not delivering the desired outcome,” stated Peyman Mestchian, Managing Partner at Chartis. “Operational risk methodologies that do not explicitly incorporate conduct risk management will continue to miss these multi-billion dollar loss events. We estimate the total losses due to misconduct in the banking sector have been in excess of $300bn over the last five years.”

The Chartis report also highlights the need for integrated risk management and re-alignment of the “three lines of defence.” It describes next generation of operational risk management systems and technologies and the application of “big data” solutions. The vendor landscape is described in Chartis’s proprietary RiskTech Quadrant®.