It is important that companies know what operational risks they might run into before making progress. The importance of these risks changes every year. In this article at Risk.net, know the major operational risks that you might run into nowadays.
9 Major Operational Risks
Though not applicable to all the industries, some of the sectors face common operational risks. Risk.net have asked opinions of risk officers, financial experts, and infrastructure specialists before coming up with the following operational risks:
- Cyber Attacks: These attacks are the topmost threat for financial organizations. You must secure third-party vendor access, employee awareness, fraud authentication processes, etc. to prevent operational risks. From hacked electromagnetic pulse to weak governance, anything can lead to cyber attacks.
- Data Breach: Data breach can happen due to illegal access, unplanned leakage, and employee carelessness. Equifax lost personal information of 145 million customers in 2017. GDPR has been implemented to penalize such actions, intentional or unintentional.
- The risk in Regulations: Mifid II, GDPR, and the Fed’s Comprehensive Capital Analysis and Review are risking regulatory risks. The defaulting companies might pay off penalties and go on with their business. This makes penalization ineffective and the purpose gets nullified.
- Scam: Banks are more worried about cyber scams than real attacks. The Agricultural Bank of China lost $497 million in 2017. Eight Indian banks lost $770 million because they were scammed by Kingfisher Airlines founder Vijay Mallya. Swedish banks experiencing email phishing lost $312 million.
- Outsourcing Jobs: Outsourcing jobs also means giving access to external vendors. It increases the possibility of data leak and breach in the IT infrastructure. Risk managers claim that it is tough to enforce policies due to stakeholder politics and trust levels. The enforcement of GDPR policies also limits the use of cloud computing.
- Selling It Wrong: RBS inappropriately sold mortgage-based securities for which it was penalized by the US Federal Housing Finance Agency. Automation has led to illicit trading as a result of AI doling out advice based on analytics.
- Risking Talent Loss: Banks are struggling to attract and retain talents, leading to major operational risks. Due to resources shortages, less experienced personnel are handling high-risk tasks. This led to an increase in errors.
- Change in Organizational Culture: Organizations are investing in new technologies thinking that investment will pay off in the long run. However, these companies do not have a change control process in place for a smooth transition causing severe operational risks.
- Risk of New Models: Companies must comply with new regulations imposed as a result of the digital European Central Bank released Trim while the US Federal Reserve included model risk governance into its programme. Basel III stops banks from using in-house operation models.
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