Understanding operational risk – expert on the current landscape and the issue with fee-based activi
“I think the parts that make sense as far as tying fee-based activities to operational risk would be to look at, again, as I described earlier, the people, process and technology behind fee-based activities, and not necessarily the fee-based activities in and of themselves,” he said. “This means that we’re not controlling the financial aspects of those activities, but we can control and understand more deeply the operational processes behind the eventual kind of fee-based financial aspects of those. They’re very autonomous, they’re very frequency based – for a fee-based activity, a very simple example would be like credit cards; every time you swipe a credit card there’s a fee associated with that and that’s income for a firm managing the card in and of itself. It’s pretty rinse-and-repeat, and there may not be a great understanding of the people, the process of the tech, controlling, protecting and motivating those activities, which for most banks is just seen almost as passive income; we’re going to collect these fees, and all is well.