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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 managementis any external company, individual, etc. that provides critical goods or services to an organization.

 

About Basel Committee on Banking Supervision (BCBS)

  • 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.
  • Tags :
  • RBI
  • Basel Committee on Banking Supervision (BCBS
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