---
title: "What is Operational risk? | IslamicOpenFinance™"
description: "The risk of loss from failed processes, systems, people or external events; for Islamic institutions it includes Shariah non-compliance risk."
url: https://islamicopenfinance.com/glossary/operational-risk/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Prudential regulation](https://islamicopenfinance.com/glossary/#prudential)

Prudential regulation

# Operational risk

The risk of loss from failed processes, systems, people or external events; for Islamic institutions it includes Shariah non-compliance risk.

Operational risk is the risk arising from inadequate or failed internal processes or systems, the behaviour of personnel, or external events. IFSB-28 specifies that for takaful undertakings it includes legal risk, Shariah non-compliance risk, fiduciary risk and part of custody risk, but excludes strategic and reputational risk. The same approach of treating Shariah non-compliance as an operational risk runs through the IFSB's banking standards.

## Sources

- [IFSB-28 Revised Solvency Requirements for Takaful/Retakaful Undertakings, 2022: Appendix: Definitions, Operational risk](https://www.ifsb.org/wp-content/uploads/2023/10/IFSB-28_En.pdf)

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

## Related terms

[**Shariah non-compliance risk** The operational risk that an institution fails to comply with Shariah rules and principles in its products and services.](https://islamicopenfinance.com/glossary/shariah-non-compliance-risk/) [**Fiduciary risk** The risk that an institution fails to meet the standards that apply to its duties as trustee or manager of others' funds.](https://islamicopenfinance.com/glossary/fiduciary-risk/) [**Capital adequacy (Islamic banks)** Holding enough capital against risks; for Islamic banks, the IFSB adapts the Basel rules to each Shariah contract.](https://islamicopenfinance.com/glossary/capital-adequacy/)

**Prudential regulation**

1. [Capital adequacy (Islamic banks)](https://islamicopenfinance.com/glossary/capital-adequacy/)
2. [Displaced commercial risk](https://islamicopenfinance.com/glossary/displaced-commercial-risk/)
3. [Profit equalisation reserve](https://islamicopenfinance.com/glossary/profit-equalisation-reserve/)
4. [Investment risk reserve](https://islamicopenfinance.com/glossary/investment-risk-reserve/)
5. [Alpha factor](https://islamicopenfinance.com/glossary/alpha-factor/)
6. [Islamic deposit insurance](https://islamicopenfinance.com/glossary/islamic-deposit-insurance/)
7. [Rate of return risk](https://islamicopenfinance.com/glossary/rate-of-return-risk/)
8. [Fiduciary risk](https://islamicopenfinance.com/glossary/fiduciary-risk/)

[All 221 terms](https://islamicopenfinance.com/glossary/)