The CBRC issued the Guidelines on Operational Risk Management of Commercial Banks

In order to strengthen the operational risk management of commercial banks, further improve their corporate governance and risk management capability, the CBRC recently issued the Guidelines on Operational Risk Management of Commercial Banks (hereinafter referred to as the Guidelines), which indicates another important measure of the CBRC on risk management as a follow up to the promulgation of guidelines on the market risk and compliance management.

The operational risk refers to the losses that are brought about by the incomplete internal procedures and IT system, problematic staff or external events, which is together with credit risk and market risk regarded as the three major risks faced by commercial banks. Against the international background of financial deregulation, business globalization, and the fast development of financial innovation and information technology, the operational risk of international banking institutions is on an upward trend; therefore, supervisory agencies in many counties are getting to pay more attention to the operational risk oversight. Particularly, those countries and regions, which declare to adopt the New Capital Accord, have included the operational risk into the capital regulation in line with the requirements of the Accord, and in addition, worked out supervisory guidelines or best practices with this regard. In China, the CBRC has also been aware of the gradually increased operational risk and issued in 2005 the Notice of Enhancing Operational Risk Control. In a bid to effectively ward off such a risk and urge commercial banks to largely improve their internal controls, this Guidelines is formulated based on the Chinese realities and international successful experience.

There are altogether thirty-one articles in four chapters in the Guidelines, covering the objectives and application scope of the Guidelines, the operational risk management, the supervision of operational risk and the explanation of some relevant concepts. To be specific, Chapter I is general provisions, clarifying the objectives of the Guidelines, operational risk definition and whom the Guidelines is applicable to. Chapter II is the management of operational risk, highlighting that banks should set up an appropriate operational risk management system which is suitable for their own business scale and complexity. Chapter III is the supervision of operational risk, stressing that banks should have in place a mechanism of reporting operational risk events and the CBRC should make regular checks on banks’ related policies, procedures and practices. Chapter IV is supplementary provisions, stating that policies banks and non-bank financial institutions are expected to implement the Guidelines.

The promulgation of the Guidelines will be helpful to further improve banking supervisory framework, reinforce the risk management of banks and mitigate the banking crimes, thus safeguarding the interest of depositors and sound operations of the banking industry.