What does operational risk entail?

Operational risk primarily refers to the potential loss that arises from inadequacies, failures, or disruptions in internal processes, people, and systems. This type of risk encompasses a wide range of issues, including errors in transaction processing, system failures, or inefficiencies in operations. It reflects the challenges companies face in ensuring that their operations run smoothly and effectively, which is crucial for maintaining service quality and business continuity.

In this context, option B accurately captures the essence of operational risk, highlighting that it stems from shortcomings within an organization’s internal mechanisms. Factors such as inadequate controls, poor communication, or insufficient training of staff can lead to significant operational challenges, potentially resulting in financial loss or damage to reputation.

The other options address different forms of risk that are not classified as operational risk. For instance, legal risks pertain to regulatory compliance, currency fluctuations relate to financial risks associated with changes in exchange rates, and cyber breaches concern information security risks. Each of these categories represents distinct challenges that organizations must manage, separate from the operational failures described in option B.