What is a key characteristic of operational risk?

A key characteristic of operational risk is the potential loss from ineffective internal processes. This type of risk arises from the internal workings of an organization, including problems related to people, processes, systems, or external events that can disrupt normal operations. Operational risk can manifest in various ways, such as system failures, human errors, or inadequate policies and procedures, leading to financial, reputational, or regulatory losses.

Operational risk is distinct from other forms of risk, such as market risk, which pertains to the fluctuations in market prices that can affect investments. Although fraud is indeed a factor that can be categorized under operational risk, the broader definition captures the larger context of internal processes that may fail, ultimately leading to losses. Currency devaluation is associated with economic risk rather than operational risk, placing it outside the scope of this particular characteristic.