Operational risks include risks of losses resulting from defects in IT systems, legal disputes, inadequate or erroneous procedures, and fraud. The Bank limits its operational risks with business procedures and internal controls that are updated and adjusted to its current business conditions on an on-going basis. The Bank has been computing its operational risks capital computation in line with the Bank of Mauritius Guidelines under the Basel 2 Basic Indicator Approach, where the capital charge for Operational Risk is taken at 15% of average gross income over the past 3 years.
The Bank’s operational risk management process involves a structured and uniform approach across the Bank. It includes risk identification and assessments, the monitoring of risk indicators, controls and risk mitigation plans for key operational risks.
On an annual basis, the Bank performs a complete review of all its processes and its procedures across all the areas of operation to mitigate the risk arising from the fast growing operations. Each subsidiary, business unit and resource area is now responsible for the day-to-day monitoring of its operational risks and for reducing and preventing losses caused by operational risks. To that end, all Heads of Department have participated in this review and each department has nominated an Operational Risk Business Coordinator (ORBC) who works closely with risk management. Procedures and processes have been updated accordingly and an action plan designed for each area.
The review conducted during the financial year ended June 2014 showed that risk ranges from low to low to medium and one department with a medium-to-high risk. The overall results were unchanged from last financial year end. Additional controls have been put in place and additional staff recruited. Restructuring with the help of consultants has been undertaken in FY 2013 following the review for the ‘B’ rated department.
Results from the last review made:
|Credit & Risk Management||C|
Where the Risk Matrix / Measurement at the Bank being:
|Absolute/ Inherent Level of Risk||1||2||3||4||5|
|8 to 10||C||C||B||B||A|
|5 to 7||C||C||C||B||B|
|3 to 4||D||C||C||C||B|
|0 to 2||D||D||C||C||C|
Improvements were noted in the Business Operations department in the various Inherent Level of Risk, overall. However it has remained at the same Average Rating as per last FY. It should be highlighted that additional controls and changes have been made in the department including creation of new posts to ensure higher levels of control.
In another area where we have seen some Inherent Level of Risk increasing, namely the Treasury Department, the Bank tested several systems and a new Treasury system (Front office) is being currently implemented to cater for the higher volume of trades and also based on new products the Bank is offering to clients. In the financial year 2014 - 2015, the Bank is expecting the system to be fully implemented as well as a new ALM (Asset & Liability Management) system under testing for implementation which the Bank intends to start as from October 2014. The two systems will enhance the level of controls and risk monitoring capabilities.