More NewsOperational Risk Key to US ‘Subprime Meltdown’

Operational Risk Key to US 'Subprime Meltdown'

Research released by Algorithmics, based on its database of over 7,000 operational risk case studies, indicates that the problems in the subprime market in the US stem from a core of operational risk issues as well as the more commonly cited credit risk issues. Many of the subprime mortgage product cases appearing in Algorithmics’ FIRST database of loss events involve an element of insufficient operational risk processes. Primary among these processes is lax underwriting, which often involves insufficient background checks, inadequate documentation and a failure to train and supervise front-line personnel. The research shows that 83% of the cases can be attributed to relationship risk, including mis-selling, suitability issues, contract obligations and regulatory and compliance violations.

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