Nucsoft’s Operational Risk Management System
Operational risk (OpRisk) has been defined by Basel committee on Banking Supervision as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Management of operational risk means and includes identification, assessment, monitoring and control/mitigation of this risk.
NORMS is developed with an objective to provide a solution to track and monitor the operational risk based on the below mentioned categories.
- Risk and control self assessment.
- Key risk indicators
- Loss Data management
- Advanced measurement approach modeling
Risk and control self assessment
It is a self-assessment process in which business within the organization identify and evaluate the risks faced, their specific level of controls over these risks, and action points for betterment. Key elements in this module are:
- Identify and Assess Inherent Risks
- Identify the Specific Controls
- Assess and Rate the Controls
- Assess Residual Risk
Key Risk Indicators:
Risk indicators are a broad category of measures used to monitor the activities and status of the control environment. KRI is further drilled down for identification and monitoring.
KRI Type I:
KRI type I is identified by the Risk management department and is applicable to all the division of the bank.
KRI Type II:
KRI type II is identified by the Operational department.
KRI Type III:
KRI type III is process specific indicators proposed by Business. Key elements in this module are:
- Identification of Key Risk and its Indicators
- Establishing the thresholds for KRI
- Establishing monitoring, reporting and escalation process
Advanced measurement approach modeling: It performs operational risk capital calculations using any of the following advanced approaches which best suites the financial institution under review.
- Loss Distribution Approach: Operational risk is estimated based on the assumption that there is a fixed and stable relationship between expected losses and unexpected losses.
- Scenario Analysis Approach: Operational risk is estimated based on the impact of extreme, but plausible, events which may not have occurred previously.
- Hybrid Approach: Operational risk is estimated based on the pure Loss Distribution Approach (LDA) for economic and regulatory capital.