The universal financial shake of 2008 altered business and occupational circumstances and will inevitably trigger the outbreak of new forms of operational risk. Under normal conditions, OR does not cause significant losses; thus, severe damage is likely to occur when an operational miscarriage or an unexpected event takes place. Under the Basel III context, the banking sector is trying to increase safety and stability, by focusing on the quality of historical loss data, while cultivating an inside operational risk awareness culture. One of the most perilous types of OR is fraud, and its effects are often dangerous and may have long-term spillovers. In this chapter, an analysis of the meaning and the main characteristics of fraud is provided, focusing on contemporary trends of the issue. Going further, the business anti-fraud strategic plan is described along with how it maximizes its efficiency, while the chapter aims to analyze the demands for an organization to pass through fraud-fragile to fraud-resistant.
TopOperational Risk
Coming along with the introduction of Basel II Accord in 2004, the stability and the insurance of the international banking system was a top issue to be managed, while up until before, OR was vaguely described as what was not credit or market risk. Given that OR is related to all the banking activities’ range (Chernobai et al., 2007), for the first time it constitutes a totally different kind of all other risks, when Basel Committee gave its proper definition as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk” (BCBS, 2011).
Under normal conditions, OR does not cause significant losses for a financial institution, thus severe damage is likely to occur when an operational miscarriage or an unexpected event takes place. This is the main reason for banking institutions continuously trying to ameliorate the way they treat OR nowadays, especially after the major OR events that had been occurred the last decades leading a number of well-known entities to massive financial losses (Martínez-Sáncheza et al., 2016) or even bankruptcies, such as Bear Stearns and Lehman Brothers (Calluzzo & Dong, 2015).
However, managing risks is a highly demanding operational context, which includes significant direct and indirect costs, in the sense of its implication but mostly under the shadow of the misleading assumption that if it is not measured, it is not there. Keeping in mind that a large number of potential risks may have a significant impact on banks and at the same time there is no way to assess every possible risk occurrence, its severity, criticality or effect on the business, through a sound Operational Risk Management (ORM), with high quality trained staff, precise and well-designed and described processes, new technologies know-how, along with a high-end internal control system is the best defense for a banking institution, while operating in the contemporary dynamic global business environment.