Operational risk management (ORM) framework encompasses a wide range of risks that can affect an organization's operations. The operational risk definition provided by the BCBS includes legal risk but excludes strategic and reputational risk. Legal risk refers to the potential for losses or liabilities arising from contractual breaches, legal relevance, laws and regulations, and the risk of financial harm in the event of errors or breaches. Legal losses can be associated with various operational event types, but they are particularly linked to event types 3 (Employment practices and workplace safety) and 7 (Execution, delivery, and process management). While credit risk, political risk, and interest rate risk are important risks to manage, they fall outside the scope of operational risk management and are typically managed separately.

A is incorrect. Credit risk is the risk of loss arising from a borrower's failure to repay a debt or meet its obligations falls under the category of credit risk management, which is a separate type of risk management framework.

B is incorrect. While political risk can affect an organization's operations, it falls outside the scope of operational risk management. Political risk is typically managed through a separate type of risk management framework known as geopolitical risk management.

D is incorrect. Interest rate risk is the risk of loss resulting from fluctuations in interest rates. This type of risk falls under the category of market risk management, which is another type of risk management framework.

Things to Remember

• Operational Risk Management (ORM) framework encompasses a wide range of risks that can affect an organization's operations.
• Legal risk refers to the potential for losses or liabilities arising from contractual breaches, legal relevance, laws and regulations.
• Legal risk is particularly linked to event types such as Employment practices and