FSA announces the results of its review of operational risk management practices
22/07/2003
The Financial Services Authority (FSA) has today published the results of a review undertaken to assess how firms are preparing themselves for the introduction of a new FSA approach to operational risk next year. Many firms face a significant challenge in deciding how to respond. The analysis that the FSA published today will help firms to develop their own operational risk programmes.
Clive Briault, Director of Prudential Standards at the FSA, said:
"Operational risk remains at an early stage of development, and although some firms have made substantial progress, many still need to think carefully about how to prepare for the FSAs new approach. The industry has told us that an analysis of current practice would help firms to develop their plans. Todays publication aims to meet this need as well as making a contribution to the wider debate about operational risk management practices."
The review also confirmed that the FSAs new policy on operational risk remains appropriate and no significant changes will be made to the policy set out in Consultation Paper 142 , published last year.
The main findings of the review demonstrated that firms more advanced in their approach to operational risk management had:
established senior management commitment to the management of operational risk;
integrated operational risk decisions into the business framework;
used a building block approach to develop and then enhance their approach, learning as they went; and
developed a clear internal focus for operational risk, often having a separate operational risk function to drive forward the programme.
The review was undertaken both to provide feedback to industry on the preparations being made and to inform the FSAs own approach and enhance its knowledge.
Notes for editors
Firms will need to comply with the FSAs policy on systems and controls when they are introduced in September 2004. This final policy is due to be published in September 2003, although the draft of this policy was contained in CP142 (issued in July 2002) which covered high level controls for operational risk.
The review team visited 22 selected firms to examine their progress towards meeting the standards the firms selected were those considered to have made significant progress.
Operational risk will also be part of the revised Capital Accord being developed by the Basel Committee. The policy referred to in this press release relates to all FSA regulated firms however, not only those subject to Basel operational risk charges.
We published a first policy statement on CP142 in March 2003. This policy statement gave feedback on the responses we had received from the industry on CP142.
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.