EBA Risk Dashboard Q4 2022: Operational risk remains a key concern
Quarterly European Banking Authority (EBA) risk dashboards highlight main vulnerabilities in the EU banking sector and serve as an extremely useful source of benchmarking information. A recently published report1 is of particular interest, as Q4 2022 data is supplemented by latest analysis of the confidence crisis involving Silicon Valley Bank and Credit Suisse. The report notes a sharp increase in financial market volatility in early March; and a somewhat uncertain macroeconomic outlook. Despite the turmoil, it acknowledges that bank’s share prices and credit spreads have recovered, and overall EU/EEA banks remain in strong financial position with sufficient capital and liquidity ratios. This is supported by a heatmap of risk indicator trends overtime containing no ‘RED’ indicators; measures are predominantly GREEN with 3 out of 10 trending AMBER.
Whilst the overall outlook is promising, the report highlights that ‘Operational risk remains a key concern’. Two areas deserve a special mention,
- Cyber risk continues to be rated as top Operational risk, with recent examples of materialised ransomware and DDoS attacks. EBA’s view is consistent with the position of Best Practice Operational Risk Forum, which rated Cyber amongst the top 3 risks. World Economic Forum also perceives widespread cybercrime and cyber insecurity as a key risk for near- as well as longer-term horizon.
- Financial crime, with sub-components of fraud, money laundering and sanctions violations, manifests itself in fines not only for committed offenses, but also for inability to evidence robust control environment. Based on ORX Top 5 losses for Q1 20232, Coinbase agreeing to USD 100 million settlement with NYDFS over AML failures is the latest example.
Times of financial market volatility are the perfect backdrop for criminals who will aim to profit from instability in any way possible. Organisations – and their risk teams – need to note EBA’s prognosis of Operational risk with all the seriousness it deserves, reviewing risk and control environment and doubling defences. Proactive and robust risk identification, control testing, and focus on the company’s risk culture will enable the firms to remain resilient.
*(2) https://managingrisktogether.orx.org/orx-news/top-5-orx-news-losses-q1-2023
Perhotelan Reageren
The persistence of operational risk as a key concern highlighted in the EBA Risk Dashboard for Q4 2022 reminds us of the ever-present need for robust risk management practices within the financial industry. It underscores the importance of organizations proactively identifying, assessing, and mitigating operational risks to safeguard their stability and resilience. By recognizing the dynamic nature of operational risks, institutions can foster a culture of continuous improvement, adaptability, and responsiveness to emerging threats. This serves as a reminder that effective risk management is an ongoing process, requiring constant vigilance and a comprehensive understanding of the evolving risk landscape.