MANAGING AND MITIGATING OPERATIONAL AND NON-FINANCIAL RISKS
The banking industry is a complex landscape. In addition to traditional credit and market risks, operational and non-financial risks also pose significant challenges to institutions’ stability and reputation.
Operational risks are mainly caused by failures in internal processes, people and systems, such as fraud, human error or system failures. Non-financial risks include conduct risks, model risks, technology and cyber risks, third-party risks, environmental, social and governance (ESG) risks, compliance and regulatory risks, as well as strategic and reputational risks.
These risks require robust management strategies to ensure that banks can effectively navigate uncertainties and maintain their integrity in the market.
Brief review of industry best practices and standards
It is widely acknowledged that effectively managing operational and non-financial risks in the banking sector necessitates adherence to best practices and industry standards. Regulatory frameworks such as Basel III offer guidance on capital adequacy, stress testing and market liquidity risk. It is essential to establish comprehensive risk management frameworks that encompass clear policies, risk appetite statements and strong governance structures.
Proactively identifying and mitigating these risks requires regular risk assessments and audits, along with effective risk culture and training programmes. Furthermore, in today’s environment, leveraging technology for risk monitoring and reporting is imperative, as it enhances the ability to detect and respond to potential threats in real-time.
Jul-Sep 2024 Issue
Habib Bank AG Zurich