Technological failure, employee fraud and employee errors are all sources of operational risk.

Question

BlackTom AI · Accepted Answer

The question presents a statement about operational risk and asks whether it is true or false. 
Option 1: True. This option asserts that technological failure, employee fraud, and employee errors are all sources of operational risk. In risk management, operational risk encompasses losses resulting from inadequate or failed internal processes, people, systems, or external events. Technological failures fall under systems and processes risk, employee fraud is a direct people-related risk, and employee errors pertain to process and people risk as well. Taken together, these are classic sources of operational risk. 
Option 2: False. This option would require rejecting at least one of the three items (technological failure, employee fraud, or employee errors) as not constituting operational risk. However, each of these elements aligns with established categories within operational risk: system failures, human risk, and process shortcomings. The claim that any of these are outside operational risk would contradict standard risk frameworks. 
In summary, the statement combines three commonly recognized sources of operational risk and does not mischaracterize them, making it consistent with typical definitions. The reasoning highlights how technology, human behavior, and process flaws all contribute to potential operational losses, which supports treating the statement as true.

FINS5530-Financial Institution Mgmt - T3 2025

Technological failure, employee fraud and employee errors are all sources of operational risk.

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