Senior management operational risk accountability at a South African bank

Abstract

Effective operational risk management is required for all banking products, activities, processes, and systems, and is therefore critical to achieving objectives. Although banks record and monitor operational disruptions and losses, accountability for operational risk management has not been well defined in academic literature, in regulatory documents, nor by the South African bank studied here. This study investigated how a sample of senior managers at a South African bank believe they should be held accountable for managing operational risk, with the aim to identify their operational risk accountability challenges and proposed improvement. The study consisted of semi-structured interviews aimed at obtaining consolidated views of these managers’ operational risk accountability opinions and experiences. The interviews were followed by a focus group discussion representing risk managers and the bank’s internal audit function with the aim to obtain their views on study findings. A risk culture approach was used to analyse the study data. The main study findings are: the senior managers reported that they understand their responsibilities towards managing operational risk; inefficiencies in the structural control environment complicate proactive management of operational risk; and although accountability for managing operational risk is implied as a senior management function, they do not feel actively held accountable for managing operational risk. Risk culture-related areas of improvement include risk-based incentives, risk information and communication, risk management framework, and senior management risk roles. These findings contribute to academic literature by providing a novel insider view of operational risk accountability based on actual experiences of senior managers at a South African bank. Even though this study concerns one bank, one would expect that these experiences are not unique to this bank and provide useful indicators of challenges that other banks may face, thereby adding valuable insights to operational risk accountability in other financial institutions and their regulatory bodies.