Employment Practices (and Workplace Safety) in the context of Risk Management denotes the risk of unexpected financial or reputational loss as the result of employment practices followed by the firm (or the nature of its working environments) which may not meet applicable laws and standards.
It is a recognized risk category in regulatory frameworks worldwide (Basel standards). The precise Basel II definition is: Losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal injury claims, or from diversity / discrimination events
Basel Level 2 & 3 Event Type Classification
Employment Practices can further be subdivided according to the following sub-categories:
- Employee Relations
- Compensation, Benefits, Termination issues
- Organized Labor Activity
- Safe Environment
- General Liability (slip and fall, etc.)
- Employee Health & Safety Rules events
- Workers Compensation
- Diversity & Discrimination
- All discrimination types
Examples by Business Line
Realizations of employee practices and workplace safety risks vary by the different business lines included in financial services. An indicative list:
- Trading and Sales: Discrimination, Occupational Accident
- Retail Banking: Discrimination, Occupational Accident, Environmental Issues
- General: Wrongful termination, Pandemic
Risks in this category can be mitigated by strong internal controls comprising of policies and rules complying with the expected standards.
Issues and Challenges
- As with all Operational Risk types, it is difficult to obtain objective measures of the actual risk, both before and after the application of controls
- Operational Risk in the Basel ii framework
- Revised international capital framework is the text of the new Basel II Accord.