The risk of loss from inadequate or failed internal processes, people and systems, or from external events. It includes legal risk but not strategic or reputational risk.
Where you will meet it
Operational risk comes up in 49 learning outcome notes across the FRM syllabus.
A few of them:
Banks FRM Part I · Financial markets and products
“Operational risk is loss from inadequate or failed processes, people and systems, or from external events, and includes fraud and legal risk.”
The Building Blocks of Risk Management FRM Part I · Foundations of risk management
“Operational risk is loss from inadequate or failed processes, people, systems or external events.”
Measuring Credit Risk FRM Part I · Valuation and risk models
“It is built by modelling loss distributions for credit, market and operational risk.”
Introduction to Credit Risk Modeling and Assessment FRM Part II · Credit risk measurement and management
“Market and operational risk capital charges are converted into RWA by multiplying by 12.5, the reciprocal of 8 percent, and added in.”
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