Operational Risk is the risk of losing money and assets because of problems with internal processes, people or systems. It can also be caused by external events
Operational risk poses a serious threat to the stability and well-being in financial institutions.
Top Operational Risks In Financial Services
New business models, complex value chains, regulatory challenges, and increasing digitization have created unknown operational risks for banks in recent years. These include:
Financial institutions should be implementing cyber security measures in order to prevent hackers from targeting them. These risks, like ransomware and phishing attacks, are becoming more frequent now that the pandemic has passed. It is especially because threat actors leverage IT weaknesses for their own profit-driven purposes.
Financial institutions rely on third-party providers, which means they have to thoroughly identify and evaluate risks in their relationships with those companies throughout the lifecycle.
Financial services organizations must also be aware that vendors/suppliers, in turn, create a risk factor as well for each client engagement due to digitalization trends making it easier than ever before to access information about these entities through multiple channels. This can include fraudulent benefits claims or data breaches compromising customer privacy if not monitored properly!
Internal Fraud and External Fraud
In 2020, almost 40% of mid/large digital financial services organizations experienced increased fraud since before COVID-19. Operational risk losses from internal scams can stem from asset misappropriation forgery and tax noncompliance with bribes or theft as well!
Fraud is a serious threat to the financial industry. It can come from internal and external sources, including check fraud, theft, hacking system breaches, and money laundering data theft. The risk arises largely because of how quickly transaction volumes are increasing and the sophisticated tools available for committing it (think malware).
Business Disruptions and Systems Failures
The risks faced by financial companies are many and varied. They can range from hardware or software system failures to power outages, telecommunications disruptions such as blackouts in addition to the more common operational hazards like human error. This could lead to missed deadlines.
The current landscape of financial services is becoming increasingly complex, and as such, banks must control operational risks by adjusting their risk management strategies. This will help them maintain stability if something goes wrong with one’s business continuity or reputation, among other things, due to this increased complexity.