Page 30 - Insurance Times February 2022

OPERATIONAL RISK

MANAGEMENT IN

OUTSOURCING

ACTIVITIES

IN A PARTICULAR

INDUSTRY

1. What is Operational Risk? Banks are institutions that help the public in the
management of their finances. Public deposit their savings
Operational risk is the prospective loss because of
in banks with the assurance to withdraw money from the
inadequate or failed business processes, people, technology
deposits as and when required. Also, banks are responsible
or any form of external event directly or indirectly
for extending loans and advances to people and businesses.
impacting operations. Any event that disrupts the business
Banks perform various types of transactions and activities to
process can be considered as operational risk.
support their banking business. These transactions may
include making or accepting payments, trading, clearing and
Following are the few examples which can be
settlement of accounts, and custody. Broadly the banking
classified as an operational risk:
functions can be categorised as below:
Y Failure of process or system
1. Primary Functions:
Y Inadequacy of internal controls a) Accepting of deposits
Y Human errors b) Granting of loans and advances
Y Frauds
2. Secondary Functions:
2. Banking industry and its functions a) Agency functions
Banking industry is a network of financial institutions b) Utility Functions
licensed by government body to provide banking services.
Author 3. Outsourcing activities in banking
industry
Aditi Patwardhan
Banking industry is a competitive business with multiple

30 The Insurance Times, February 2022