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Cyber risk rated

UK bankers and market watchers now place fears about cyber crime at the top of a list of 24 possible risks to banks. Banks are seen as prime targets for financial crime, particularly cyber crime, and this has now eclipsed fears of an economic slump or the fallout from intense regulation among the UK banking community.

The threat tops the watch list of 113 UK bankers, observers and risk regulators surveyed as part of the the CSFI’s latest global annual survey, conducted in association with PwC, ‘Banking Banana Skins 2015’, unveiled at the annual risk management conference, RiskMinds 2015, in Amsterdam. In the UK more generally, ‘sustainability’ was rated 24th. That the UK puts cyber-crime so highly is a view slightly at odds with many countries which rate the economic environment as posing the greatest risk.

One UK respondent said: “We may at some point see a cyber attack so powerful on an individual bank that it has the power to bring down the institution, necessitating a state bailout.”

The hacking threat is also a concern globally as cyber criminals target the weak links in a closely interwoven worldwide banking system. Among the 672 bankers, banking regulators and close observers of the banking industry in 52 countries who participated worldwide, criminality was No 2 on the list behind fears of economic volatility. In the UK, doubts surrounding the ability of banks to manage the growth in crime are also under question, as shown by strong concern about the quality of technology (rated fourth) and risk management systems (rated eighth in the UK versus globally rated sixth).

Simon Hunt, UK head of banking and capital markets at PwC, said: “Although much work has been done by banks and their regulators to strengthen risk controls, banks still have more to do to address the scale of risk and its ever-changing nature. The survey shows a fairly strong global consensus that the main threats to banking safety come from areas such as criminality, which has shot up the rankings dramatically, technology risk, and conduct practices.

“Also of note is the risk associated with an organisation’s business model which has not previously featured. The fact that it features in the top ten overall, and has ranked consistently high globally, shows it is receiving a lot of thought.”

The UK results resemble those of North America where the Americans and the Canadians are more concerned with criminality than with the macro-economic outlook, possibly because of stronger economic growth. Generally, the UK responses produce a picture in which many of the crisis-related risks (credit, liquidity, capital etc) and the public sector aftermath (political interference, excessive regulation), are beginning to ease. But these are being replaced by a set of institutional risks (ie, risks more within the banks’ management control), notably ageing technology, reputational risk, poor business conduct practices and weak internal governance and risk management systems. These risks, however, tend to be scored more strongly by observers of the banking scene than by bankers themselves.

State of global economy

A breakdown of responses shows that all major respondent types (bankers, risk managers and observers) are strongly concerned about the state of the global economy. Economic concerns are also strong in most geographic regions. David Lascelles, the survey’s editor, said: “These results show that many people fear that the economic recovery will fail and cause severe damage to the banking system. This is a worrying prospect.”

Some marked differences between the UK and the rest of the world included:

Higher concerns:

Corporate governance: weakness at the top of banks is viewed as a much more severe risk in the UK than the world at large. · Management incentives: similarly, seen as more of a problem in the UK than elsewhere. · Reputation risk: Ranks No. 6 in the UK but only No. 12 elsewhere.

Lower concerns

Interest rates: banks are prepared for QE “normalisation”. · Capital availability. Plenty of capital available for healthy banks. · Political interference. Seen to be on the wane. · Credit risk. Seen as a waning risk by bankers and risk managers, though less so by observers of the business.

Photo by Mark Rowe; Bank of England, Threadneedle Street.


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