ORX calls for major overhaul in operational risk

ORX, an association representing 125 of the world’s major banks and insurers, is calling for a substantial overhaul of operational risk practices in response to rapid digitalisation across the global financial sector.

According to ORX, these shifts present an opportunity to enhance value for firms and their customers.

With insights from 50 senior risk leaders, including chief risk officers and heads of operational risk, ORX noted that it collected perspectives on the need for an updated operational risk approach, publishing its findings in the ORX Vision Paper.

The report revealed that risk leaders broadly agreed that swift business transformation requires a fundamental shift in operational risk management.

Luke Carrivick (pictured above), executive director of ORX, stated that risk leaders conveyed the need for the industry to adopt more innovative and assertive practices to keep pace with ongoing changes.

"Risk leaders emphasised that the industry must be bolder and more innovative to keep up with the rate of change. With constant and increasingly complex threats, a firm’s capability to operational risk well can determine its success or failure,” Carrivick said.

The report highlighted four primary areas where transformation is seen as essential:

• Digitalising existing operations – Many firms prioritise digitalising their current operations, evolving from defensive measures against new digital competitors to a necessity for sustaining business. Achieving a comparable speed, scale, and cost profile to digital-first competitors has become an industry standard.
• Building new digital businesses – Digitalisation also enables the creation of new service- and fee-based business models, leveraging brand reputation, data, and technology to generate value. These new digital ventures often deliver significant value and differentiate firms in the market.
• Rising dependence on ecosystems – To achieve transformation, firms increasingly rely on integrated ecosystems that extend beyond traditional third-party partnerships. These ecosystems now include “fourth-party” relationships, where firms have limited visibility into their suppliers’ suppliers. This complex network of dependencies has become vital to maintaining competitive operations.
• Increasing complexity and connectivity – The industry is experiencing heightened complexity, with interconnections spanning various business areas, technologies, and organisations. Economic instability, political shifts, technological advances, and evolving societal expectations are influencing strategic business choices. In this environment, the ability to implement change effectively has become a competitive edge.

Read More: Understanding operational risk – expert on the current landscape

Simon Wills, senior board advisor at ORX, noted that managing operational risk efficiently offers a pathway to value creation.

“Digital business models are amplifying the importance of reputation, data, and technology as critical assets to protect. Firms that adapt and manage these risks well are more likely to succeed, create value, and stay competitive,” Wills said.

ORX views these developments as an opportunity to harness value by integrating strategic risk management into the digital transformation process. Effective risk management is increasingly seen as a means not only to minimise threats but also to leverage opportunities and create lasting value for firms and their customers.

The company also reiterated its commitment to advancing discussions that define the future of risk management in financial institutions globally.

What are your thoughts on this story? Please feel free to share your comments below.