| Summary: | Robust internal control system, is one of the most important criteria's in developing a solid operational risk management in banks. In fact, it is crucial for financial institutions to understand the risk they encountered and
the importance of having effective procedures, systems and skills in place to manage risk, due to the competitiveness and challenging environment. Consequently, this article examines the relationship between internal control system and the perceived operational risk management in banks. Agency theory is used to examine the relationship. Additionally the survey questionnaires were emailed to branch managers and assistant
managers of 650 local commercial bank branches across Malaysia and 132 fully completed survey
questionnaires were received. Besides, data was analyzed using multiple regressions. Importantly, the study found that Malaysian conventional banks have a good internal control system and perceived operational risk
management with a mean of 4.71 and 4.56 respectively. Moreover, there were mixed findings between the relationship of internal control system and perceived operational risk management. Notably, the implementation
of risk assessment, top management information and communication, branch information and communication and top management monitoring were found to have a significant result in the documentation of hazard identification and control decision. It can be seen that top management monitoring is an important factor that influence perceived operational risk management in Malaysian local conventional banks.
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