What role do regulators play in operational risk management (ORM)?

Regulators play a crucial role in operational risk management by setting requirements and standards for organizations to follow. This is important as it ensures a baseline level of risk management practices across the industry, fostering consistency and stability. By establishing these standards, regulators help organizations identify, assess, and mitigate operational risks, promoting the overall health of the financial system and protecting stakeholders.

These regulations provide a framework within which organizations must operate, ensuring that they implement necessary controls, conduct proper risk assessments, and maintain transparency in their risk management processes. This oversight is essential in building trust among consumers and investors and in safeguarding against systemic risks that could arise from mismanagement or inadequate risk practices.

While the creation of risk management frameworks is a part of the regulatory role, it often stems from the established requirements and standards. Financial support is not typically a function of regulators, as their mandate focuses more on oversight rather than financing. Additionally, while regulators may conduct audits, their primary responsibility lies in the formulation of the requirements that organizations must adhere to, rather than performing routine audits on practices.