Operational risk management and business continuity planning in the banking industry

Abstract

This dissertation gives a detailed approach to operational risk (OR), given the significant increase of such risk in the banking sector over the recent years. In addition, this dissertation talks about the design and implementation of Business Continuity Planning (BCP), as it plays an essential part in the overall Operational Risk Management Framework (ORMF). The dissertation starts with the meaning of OR including the main sources of OR. Then it continues with the framework of Operational Risk Management (ORM) as implemented by most organisations. This will be followed by discussing the measurement approaches of OR and the three pillars introduced by the Basel II Accord. The last part of the literature review deals with the design and implementation of BCP in the banking industry. In addition, the main goal of this dissertation is to analyse the growth of ORM and BCP in the local scenario. Interviews with domestic banks will be carried out in order to obtain practical data collection and be able to understand the management of OR and Business Continuity (BC) in Malta. After the interviews are conducted, this dissertation continues with some analysis and interpretation, together with comparisons between the theoretical and practical data. Based on the theoretical and empirical findings, this paper concludes by providing a discussion on future suggestions with emphasis on ORM practice in ii banks. The research discovers that ORM and BC are becoming more popular and well-built in the Maltese banking sector and that domestic banks are doing their utmost in order to mitigate OR. Moreover, there should be further guidance and papers implemented by the local regulator to ensure that banks have more effective ORM and BCP and therefore, banks will be more prepared for any future challenges.