Operational risk is the risk of losses arising from the inadequacy or failure of internal processes, people and systems, or from external events. It includes legal risk, but excludes strategic and reputational risk. Operational risk management has always been a complex function for banks. Today, the scope of regulatory compliance and risk management has become much broader, and the potential impact of non-compliance is significantly high. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay The risk function in banks is evolving from a number crunching function to a more dynamic business enabler, focusing on risks arising from complex products, diversified operations, diverse workforces, multiple channels and regulatory compliance across regional and global. Operational risk came into force in 2001, when it was recognized as a distinct class of risk outside of credit and market risk, by Basel II. Although the Basel Committee has proposed some approaches to measuring operational risk, their level of sophistication varies from bank to bank. This is also due to the fact that operational risk is the most complicated type of risk in terms of quantifying, identifying and mitigating risk. Operational risk is highly dynamic in nature and is influenced by numerous factors such as internal business processes, regulatory landscape, business growth, customer preferences and even factors external to the organization. It is based on the premise that a bank, regardless of external factors, will fail to achieve one or more operational objectives in a given year. Operational risk and its management have attracted considerable attention since the mid-1990s as a consequence of banking crises resulting from human error, fraud and/or failed controls (e.g. Barings Bank, Daiwa Bank and Allied Irish) and for The intent of the Basel Committee on Banking Supervision since 1999 introduces a new regulatory capital requirement for operational risk in addition to the minimum regulatory capital requirement for credit and market risk. Please note: this is just an example. Get a customized document from our expert writers now. Get personalized insights essay Furthermore, technology and increased product complexity have led to a greater focus on managing operational risk rather than merely measuring it..