The operational realm is one in which a minor oversight or single misstep in daily routines could have major consequences, potentially resulting in significant direct costs and, even worse, devastating reputational damage. With this in mind, mutual fund/ETF managers have every reason to want to understand and reduce their exposures to operational risks.
Operational risk can stem from a variety of sources. The Basel Committee on Banking Supervision defines it as "the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events."While there is no generic checklist for identifying operational risk, virtually every investment management company can benefit from taking a fresh look at common areas of risk. Here are areas of risk frequently encountered by those who work in or around investment operations.