Barclays 2012 Annual Report Download - page 189

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
Operational risk
Operational risk is defined as the risk of direct or indirect impacts resulting from human factors, inadequate or failed
internal processes and systems or external events.
Operational risks are inherent in the Group’s business activities and are typical of any large enterprise. It is not cost effective to attempt to
eliminate all operational risks and in any event it would not be possible to do so. Losses from operational risks of small significance are expected
to occur and are accepted as part of the normal course of business. Those of material significance are rare and the Group seeks to reduce the
likelihood of these in accordance with its risk appetite.
The Principal Risk comprises the following Key Risks: CyberSecurity risk, External suppliers, Fraud, Financial reporting, Information, Legal,
Product, Payments, People, Premises and security, Regulatory, Taxation, Technology and Transaction operations. For definitions of these
key risks see page 342.
For more information on Legal, Regulatory and Taxation risks please see pages 112, 113 and 115.
Operational risk profile
The Barclays operational risk profile in 2012 was dominated by the regulatory penalties in respect of LIBOR and EURIBOR submissions (£290m)
and provisions for PPI (£1.6bn) and interest rate hedging product redress (£850m).
Within operational risk a high proportion of risk events have a low associated financial cost and a very small proportion of operational risk events
will have a material impact on results of operations and financial conditions of the Group. In 2012 74.7% of the Group’s net operational risk losses
had a value of £50,000 or less (2011: 70.4%) and accounted for only 1.3% of the Group’s total net loss impact. The analysis below presents
Barclays operational risk events by Basel 2 category. There has been an increase in the proportion of losses by amount within the Clients, products
and business practices category to 92.2% (2011: 65.9%), driven by penalties relating to the industry-wide investigation into the setting of
interbank offered rates, provisions for PPI and interest rate hedging product redress. In 2012, Execution, delivery and process management
(46.1%) and External fraud (40.8%) remain the categories with the highest frequency of events. Execution, delivery and process management
events are common to the banking industry where high volumes of transactions are processed on a daily basis. These are often fully or partially
recovered, resulting in low value net losses. High volume, low value external fraud events are also consistent with industry experience, driven by
debit and credit card fraud. These remained within the expected levels during 2012.
The Group’s operational risk profile is informed by bottom-up risk assessment by business unit and top-down qualitative review from the
Operational Risk Committee. This continues to highlight Clients, products and business practices as a key operational risk exposure. CyberSecurity
risk is an area identified for increased focus which has driven the introduction of a new key risk category and impacts business disruption and
system failures and external fraud risk events.
For further information see Risk management section (pages 313-343).
All disclosures in this section are unaudited
1.9
3.8
4.9
5.2
3.2
4.9
0.3
0.9
46.1
36.9
40.8
42.5
2.8
5.8
Operational risk events by risk category
% of total risk events by count
Business disruption
and system failures
Clients, products
and business practices
Damage to
physical assets
Employment practices
and workplace safety
Execution, delivery and
process management
External fraud
Internal fraud
2012
2011
0.2
0.5
92.2
65.9
0.1
0.3
0.1
0.5
3.7
22.4
3.6
9.9
0.1
0.5
Operational risk events by risk category
% of total risk events by value
Business disruption
and system failures
Clients, products
and business practices
Damage to
physical assets
Employment practices
and workplace safety
Execution, delivery and
process management
External fraud
Internal fraud
2012
2011
barclays.com/annualreport Barclays PLC Annual Report 2012 I 187
Risk review
Operational risk