U.S. Financial Services Continue to Scramble for an Effective Operational Risk Management Methodology

Very large financial services businesses based in the United States continue to struggle as they seek to implement genuinely effective operational risk management methods to safeguard the integrity of mission critical applications.

In late 2012 J.P. Morgan disclosed a substantial trading loss attributable to the uncontrolled activity on a team of stock traders. On August 21, 2013, the NASDAQ stock exchange was forced to cease activity for over 3 hours during the trading day as the result of technical malfunctions (the specific problems were not disclosed to the public as of the time this post was written).

Nevertheless, acknowledged experts agree the exposure created by this absence of effective controls is very large. So why is it so difficult for effective controls to be implemented?

We would not presume to present a simple answer to this question. When we consider the frequency of these problems, along with examples of a worrisome attitude in the financial services industry, we can’t help but envision the problem as something very complex. The worrisome attitude can be found in some recently published notions about data security, and, perhaps, risk management itself, as somehow less important, less mission critical than other, more pressing tasks required to keep operations running.

We hope our readers will agree, categorizing this industry attitude as “worrisome” is an obvious understatement. The kind of complete breakdown in proper functioning of financial markets as the NASDAQ shutdown of August 21, 2013 unfolded, is absolutely the kind of black swan event the entire financial services industry should be dedicated to avoid.

The sunny side of this story, if there is one, is the undiminished opportunity still before ISVs who want to enter this market. The market still needs effective operational risk management solutions. ISVs with the technology required to satisfy these market needs will undoubtedly be handsomely rewarded for their efforts.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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