RBI releases updated “Guidance Note on Operational Risk Management and Operational Resilience’’ for Regulated Entities (REs)

Posted 02 May 2024

2 min read

The Guidance Note is based on the Basel Committee on Banking Supervision (BCBS) principles document (2021).
- It has replaced the Guidance Note of 2005.
Need for Guidance Note: Rising frequencies of Operational Risks (ORs).
- OR is defined as the risk of loss resulting from failed internal processes, people and systems or from external events.
  - E.g. Information Technology threats, geopolitical conflicts, etc.

Key highlight of guidelines:
- Coverage: It includes REs such as Commercial banks, non-banking financial companies, cooperative banks, and All India Financial Institutions.
  - Earlier Note was applicable only to Scheduled Commercial Banks.
- Emphasis on three lines of defence Model: It includes
  - Business unit (first line): A third party Responsible for managing the risks of products, services, etc.
  - Organizational Operational Risk Management Function (OORF) (Second line): To promote a sound Operational Risk management culture.
  - Audit function (Third line): Provides an independent assurance to works of the other two defence lines.
- Third-party dependency management: is any external company, individual, etc. that provides critical goods or services to an organization.

It is the primary global standard setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters.
Its 45 members comprise central banks and bank supervisors from 28 jurisdictions.

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