Advanced frameworks for managing operational risk in banking outsourcing arrangements

Posted: Jul 13, 2025

• Dr. Prof. William Novak
• Dr. Prof. Zoe Park
• Dr. Scarlett Dubois

Abstract

The globalization of financial services has precipitated an unprecedented expansion of banking outsourcing arrangements, creating complex operational risk landscapes that traditional risk management frameworks struggle to navigate. Conventional approaches, largely derived from Basel II and III frameworks, employ categorical risk assessments and periodic audits that fail to capture the dynamic, interconnected nature of contemporary outsourcing ecosystems. These limitations have become increasingly apparent as financial institutions outsource critical functions ranging from IT infrastructure to customer service operations across geographically dispersed providers. This research addresses the fundamental inadequacy of current operational risk management paradigms by introducing a quantum-inspired computational framework that reconceptualizes risk as a dynamic, multi-dimensional system rather than a collection of independent variables. The novelty of our approach lies in its application of quantum probability principles to model the superpositional states of risk factors and their entanglement across outsourcing arrangements. Unlike traditional binary risk assessments, our framework acknowledges that risk factors exist in multiple potential states simultaneously until measured.