The business of banking is a risk business. However, until recently, in most financial institutions, only the two major types of banking business risk, Credit and Market, have been subject to analysis and measurement. The third major type of risk and possibly the most complex, Operational Risk, has been largely ignored from the point of view of an understanding of the risks, assessment of related controls and measurement of the effect of the control environment on the operational risk profile of the bank. This is now rapidly changing. The Boards and Management of banks now understand, partly as a result of the many Basel pronouncements and related instructions from their regulators, but also as a result of their increased corporate governance responsibilities, that unknown and uncontrolled operational risk can be a major threat to their institutions.

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