CISI Professional Practice Exam 2025 – Complete Prep Guide

Operational risk encompasses the potential for loss resulting from inadequate or failed internal processes, systems, people, or external events. In the context of stockbrokers, one of the significant risks associated with operational risk is system failures or errors in processing transactions.

When a stockbroker relies on technology to execute trades or manage client accounts, any malfunction, whether due to software bugs, hardware failures, or human error, can lead to significant financial consequences. For instance, a system failure might prevent timely execution of trades, leading clients to miss trading opportunities or incur losses, or might result in processing incorrect transaction details, leading to discrepancies in accounts and potential regulatory penalties.

These operational failures can undermine client trust, damage a firm’s reputation, and lead to considerable financial ramifications, illustrating why this risk is particularly pertinent for stockbrokers in their everyday operations.