Material Risk Identification Study

  • 25 March 2021

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Exploring material risk identification in operational risk management

This report will help you understand the concepts and practice behind material risk identification programmes in the operational risk discipline in the financial industry.

About the study

Whilst the majority of regulators have a requirement for a formal material risk identification process to be in place, specific guidance and definition is somewhat limited. This study helps drive commonality within definition and practice.

The study focused on three key concepts relative to material risk identification:

  1. How organisations define materiality internally (what is the definition of material, how do firms establish what is material in terms of risk).
  2. The method firms use to identify their material risks within their organisation (who is involved, what is the process, how is it communicated, and what is the approval or validation approach).
  3. To find out what process(es) are used to determine materiality in quantitative terms.

More than 45 financial organisations headquartered in 20 different countries took part in the study, sharing information, knowledge and experience.

4 key takeaways from the study

Here are just some of the findings from our study:

  1. The number of material risks identified ranged from 1 risk to 5,000
  2. There were only 3 firms who reported over 1,000 material risks, while 5 firms who reported over 100
  3. The majority were in the range of 1 to 50, with the median number of material risks being 10
  4. The vast range of material risks reported was most likely a consequence of different views of materiality and granularity