Barclays 2015 Annual Report Download - page 208

206 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Risk review
Risk performance
Operational risk
Overview
Operational risks are inherent in all 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. Small losses from operational risks are expected to occur and are
accepted as part of the normal course of business. More material losses
are less frequent and the Group seeks to reduce the likelihood of these
in accordance with its risk appetite.
The Operational Principal Risk comprises the following Key Risks:
External suppliers, Financial crime, Financial reporting, Fraud,
Information, Legal, Payments process, People, Premises and security,
Taxation, Technology (including cyber security) and Transaction
operations. For definitions of these key risks see page 139. In order to
ensure complete coverage of the potential adverse impacts on the Group
arising from Operational risk, the Operational risk taxonomy extends
beyond the Operational key risks listed above to cover areas included
within Conduct risk.
This section provides an analysis of the Group’s operational risk profile,
including events, those which are above the Bank’s reportable threshold,
which have had a financial impact in 2015.
For more information on Conduct risk events please see page 208.
Summary of performance in the period
During 2015, total operational risk lossesa increased to £241.3m (2014:
£143.9m) with a 3% reduction in number of recorded events as
compared to last year driven by a limited number of events in execution,
delivery and process management category.
Losses were mainly due to execution, delivery and process management
impacts, external fraud and business disruption and system failures.
Operational risk profile
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 the financial results of the Group.
In 2015, 82.6% (2014: 78.0%) of the Group’s net reportable operational
risk events had a value of £50,000 or less and accounted for 11.1%
(2014: 30.5%) of the Group’s total net loss impact.
The analysis below presents the Group’s operational risk events by Basel
event category:
 Execution, delivery and process management impacts increased to
£137.5m (2014: £81.3m) and accounted for 57.0% (2014: 56.5%) of
overall operational risk losses. The events in this category are typical of
the banking industry as a whole where high volumes of transactions
are processed on a daily basis. The increases in impacts were largely
driven by limited number of events with higher loss values
 External fraud (66.6%) is the category with the highest frequency of
events where high volume, low value events are also consistent with
industry experience, driven by debit and credit card fraud. This
accounted for 27.4% of overall operational risk losses in the year from
29.7% last year.
The Group’s operational risk profile is informed by bottom-up risk
assessments undertaken by each business unit and top-down
qualitative review from the Governance Risk and Control Committees for
each of the key risks. External fraud and technology are highlighted as
key operational risk exposures. Developments of enhanced fraud
prevention and transaction profiling tools underway to combat
increasing external fraud frequency especially in the credit cards, digital
banking, unauthorised trading and social engineering.
Cyber security risk continues to be an area of attention given the
increasing sophistication and scope of potential cyber-attack. Risks to
technology and Cyber security change rapidly and require continued
focus and investment.
For further information see Risk management section (pages 127 to 142).
2015
20
14
4.9
3.5
3.1
(2.5)
0.4
1.7
4.6
4.1
57.0
56.5
27.4
29.7
2.5
7.1
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
Operational risk events by risk category
% of total risk ev
ents by value
2015
20
14
2.8
2.9
0.0
0.1
0.9
0.6
0.7
2.1
28.1
32.5
66.6
59.9
0.9
1.8
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
% of total risk ev
ents by count
Note
a Figures include operational risk losses for reportable events having impact of +/- £10,000 and exclude events that are conduct risk, aggregated and boundary events. A boundary
event is an operational risk event that results in a credit risk impact.
Operational risk is defined as any instance
where there is a potential or actual impact to
the Group resulting from inadequate or
failed internal processes, people, systems, or
from an external event. The impacts to the
Group can be financial, including losses or
an unexpected financial gain, as well as
non-financial such as customer detriment,
reputational or regulatory consequences.
All disclosures in this section (page 206) are unaudited.