The Institute and Faculty of Actuaries (IFoA) has today published a document full of ideas of how financial services firms could better handle operational risk, lowering the likelihood of incidents such as Libor rigging and PPI mis-selling.
In its paper aimed at banks, insurers and other financial services firms, the IFoA's Operational Risk Working Party examines how businesses could better design their risk models, particularly in light of new regulations such as Solvency II.
"From pensions and PPI mis-selling to Libor rigging, financial firms have suffered billions of pounds of losses from operational risk events," said Patrick Kelliher, chair of the IFoA's Operational Risk Working Party. "It is important that banks, insurers and other financial firms understand the extent of their exposure to operational risk."
Among the report's suggestions are making a greater effort to capture information on risks and losses of pension schemes, asset managers and third parties, even though the company may be compensated for any such losses. By doing this, the IFoA argues, companies would have a more accurate idea of their risk situation.
The study also stresses the importance of firms ensuring that they are using high-quality data to create any risk models they may be using.
Kelliher added: "The IFoA's paper will be an essential guide for organisations in addressing the issues affecting inputs into operational risk models and outlines best practices to address these issues."