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SAT-3: Operational risk to banks, organisations with high dependency on Internet

The recent failure of Nigeria’s terrestrial internet service provision, the South Atlantic 3/West Africa Submarine Cable, known as SAT-3, has been declared as a major operational risk to the banks and other organisations with a high dependency on international and internet communications.

Minister of Communications
Minister of Communications

Making this declaration in a chat with the media, Mr. Remi Adebonojo, Head of Risk Management and Consulting at Kedari Capital, said the impact the failure has had on the banks, telecoms and government bodies has sufficiently highlighted the lack of preparedness for the crystallisation of operational risk incidents within these organisations.

According to Adebonojo, operational risk occurs when an organisation suffers a direct or indirect loss due to an inadequacy or breakdown of internal processes, systems, people or external events. “Operational risk management would help to minimise day to day losses and reduce the occurrence of costly incidents therefore allowing the organisation focus on its core business”, he said.
Recall that the recent collapse of SAT-3 line did affect the operations of some banks, which was widely reported in the media. Some of these banks were forced to shut down their core activities, while some others had to run skeletal services, and could not process clients’ requests as there was no internet connectivity.

It was also reported that some other organisations that suffered similar fate were the telecom firms. Some could not process international and roaming calls as well as provide services to subscribers. Such services that were impeded include subscribers on mobile internet and blackberry services. The failure impacted over 70 percent of Nigeria’s internet capacity, hence it rendered prostrate both public and private organisations.
However, Adebonojo highlighted the lack of operational risk management in some these organisations. He therefore pointed out that operational risk as a discipline of risk management has grown in importance over the past few years due to the Basel II accord, which requires organisations to quantify risk and set aside capital to cover unexpected losses that may arise from it.

His words: “The operational risk management focus has been mainly within banks, and their interest lies squarely on the capital allocation element and not necessarily about reaping the full benefits of operational risk management. The current SAT3 failure is a glaring example of the impact an operational failure could have on the bottom line of a business.  The sheer exposure to operational risk issues can be seen across every endeavour embarked on in Nigeria, but even as this is neither new nor peculiar to Nigeria, it is the total absence of the operational risk frameworks to deal with these issues that makes us unique and increases our exposure”.

Adebonojo therefore offered solutions to the issue of operational risk management. He said if the banks, telecoms and other organisations had a fully implemented business continuity plan in place, there   would be no need to scramble around in search of alternative internet providers rather these organisations would benefit from a coordinated approach.

which would have been tried and tested and therefore mitigating their exposure to such an outage. Such response, according to him, could be putting in place alternative communication systems that do not run on the main SAT-3 cable, like satellite transmitters/receivers or simply implementing agreed manual processes which will allow organisations to carry out their core functions.

He further stated that under operational risk management one of the core requirements for an organisation is to map key processes, systems, products, functions and analyse dependencies and measure the impact of unavailability. “Based on the result of this measurement a strategic response should be put in place which is considered as a business continuity management plan.  This plan if painstakingly done and tested regularly will help to reduce kneejerk reactions to operational failures such as the current SAT3 issue”.

While referring to some organisations’ claims that the cost of building redundancy for a SAT-3 cable is ridiculous and mostly unpractical, he opined that operational risk management is not all about building redundancy.

“It is about having a predetermined response to help minimise the impact of the risk if it does crystallise. Operational risk as a discipline needs to be taken seriously by organisations across all sectors, as it has a far reaching impact where operational failures could make or break an organisation as we have seen in the past”, he said.


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