How is operational risk defined?

Operational risk is defined as the risk from inadequate or failed internal processes, people, and systems, or from external events. This definition encompasses a broad range of potential issues that might arise in a business context, including but not limited to mistakes made during operations, fraud, system failures, or events occurring outside the organization, such as natural disasters.

Choosing this option reflects an understanding that operational risk is fundamentally about the performance and reliability of the internal mechanisms that drive an organization. It emphasizes that the risk can stem from internal inefficiencies or inadequacies that can lead to financial losses, disruptions, or reputational damage.

The other options refer to different categories of risk: market fluctuations relate to market risk, loan defaults pertain to credit risk, and customer complaints could be linked to reputational risk or service quality issues. While these risks are important in their own right, they do not accurately capture the definition of operational risk, which is specifically focused on the internal processes and systems within an organization rather than external factors or specific financial instruments.