Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes legal risk, but excludes strategic and reputational risk. Operational risk management has always been a complex function for banks. Today, the scope of regulatory compliance and risk management has become much broader, and the potential impact of non-compliance is considerably high. Say no to plagiarism. Get a tailor-made essay on 'Why violent video games should not be banned'? Get the original essay The risk function in banks is evolving from a number-crunching function to a more dynamic business tool, focusing on risks arising from complex products, diversified operations, a diverse workforce, multiple channels and regulatory compliance at regional and global levels. Operational risk has come into force since 2001, when it was recognized as a distinct class of risk apart from credit risk and market risk, by Basel II. Although the Basel Committee has proposed certain approaches to measuring operational risk, their level of sophistication varies among banks. This is also because operational risk is the most complex type of risk when it comes to risk quantification, identification and mitigation. Operational risk is very dynamic in nature and is influenced by many factors such as internal business processes, regulatory landscape, business growth, customer preferences and even factors external to the organization. It is based on the principle that a bank, regardless of external factors, will fail to achieve one or more operational objectives in a given year. Operational risk and its management have received considerable attention since the mid-1990s due to banking crises resulting from human errors, fraud and/or missing controls (e.g. Barings Bank, Daiwa Bank and Allied Irish) and due to the intention of the Basel Committee on Banking Supervision since 1999 to introduce a new regulatory capital requirement for operational risk in addition to the minimum regulatory capital requirement for credit and market risk. Keep in mind: this is just a sample. Get a personalized document from our expert writers now. Get a Custom Paper Essay Additionally, technology and increased product complexity have led to a greater focus on managing operational risk rather than simply measuring it..