Operational risk

Operational losses can be caused by external factors, deliberate, accidental or natural, or failures of internal processes, people or systems. They can, unfortunately, never be entirely eliminated. Especially in today's environment of complex global processes, low regulatory tolerance for error and growing propensity for litigation, operational risk runs alongside market and credit risk as one of UBS's principal risk classes.

UBS continues to place great importance on its operational risk framework. The firm aims to contain the levels of risk and ensure that sufficient information is available to make informed decisions about additional or adjusted controls.

Many potential causes of loss are identified before the probability, timing or amounts of future cost are known with certainty. International Financial Reporting Standards (IFRS) require UBS to make provisions, based on the best estimate of a liability, when it is probable that a payment will be required, even if the amount to be paid has not been exactly determined yet. This requires the exercise of judgment. Once UBS is able to quantify any potential operational risk more accurately, the corresponding provision is revised up or down.