Question

What sort of risks do you think are particularly timely items for financial institutions to worry about today?

What are some items you think might become a bigger issue in the future but are not a major concern today?

Examples: Credit, Liquidity, Interest Rate, Market, Off-Balance-Sheet, Foreign Exchange, Country or Sovereign, Technology, Operations, Insolvency Risk

Answer 1

Financial services industry operates in a very complex environment requiring an adjustment in risk management systems and procedures.As a result of changes in technology, new regulations, change in customer behavior, competition etc. risks have increased. Financial institutions have borne billions in losses due to these risks. Let us have a look at some of the risks elaborately:-

1. Cyber crime - Data is of the most vital part of any financial institution. Keeping the data safe and confidential has become very difficult as there is data breach leading to cyber crime. Cyber crime can have serious consequences for financial institution as they operate on web. This kind of crime can wreak havoc in institution's internet infrastructure and breaking functionality for the users. Cyber crime will always remain a major issue for the financial institutions.

2. Political risk and uncertainty - Political risk and uncertainty are factored as one of the risks for financial institutions. Sudden changes in political winds can have serious repercussions in these institutions. These risks though not a major concern today may become a bigger issue in the future.

3. Credit Risk - Credit risk is the risk that financial institution faces when the borrower fails to repay loans back due to death, inadequate income, loss in business and any other reasons.

4. Market Risk - Market risk is the risk that financial institution faces due to changes in equity prices, interest rates, credit spreads, foreign exchange rates and other indicators whose values are set in public market.

5. Operational Risk - Market risk is the risk that financial institution faces from inadequate or failed internal processes, people and systems or external events. It widely occurs due to human error. It is not a major concern now but might be a bigger problem in future.

There are many more risks in financial institution hence more importance has been given to compliance officers.