RBI releases updated “Guidance Note on Operational Risk Management and Operational Resilience’’ for Regulated Entities (REs)

Link copied successfully!

The Guidance Note is based on the Basel Committee on Banking Supervision (BCBS) principles document (2021).
- It has replaced the Guidance Note of 2005.
Need for Guidance Note: Rising frequencies of Operational Risks (ORs).
- OR is defined as the risk of loss resulting from failed internal processes, people and systems or from external events.
  - E.g. Information Technology threats, geopolitical conflicts, etc.

Key highlight of guidelines:
- Coverage: It includes REs such as Commercial banks, non-banking financial companies, cooperative banks, and All India Financial Institutions.
  - Earlier Note was applicable only to Scheduled Commercial Banks.
- Emphasis on three lines of defence Model: It includes
  - Business unit (first line): A third party Responsible for managing the risks of products, services, etc.
  - Organizational Operational Risk Management Function (OORF) (Second line): To promote a sound Operational Risk management culture.
  - Audit function (Third line): Provides an independent assurance to works of the other two defence lines.
- Third-party dependency management: is any external company, individual, etc. that provides critical goods or services to an organization.

It is the primary global standard setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters.
Its 45 members comprise central banks and bank supervisors from 28 jurisdictions.

Tags: