Over the decades, the financial services industry has undergone significant transformation due to internal and external factors, including business model transformation, adoption of advanced technologies, changing regulatory environments, etc. Modern banking sector is a highly complex ecosystem, where stakeholders of different backgrounds — internet, tech companies, startups — play an increasingly influential role.
In an increasingly complex environment of the financial services industry, new complexities arise, requiring an adjustment in risk management systems and procedures. For financial institutions, expanding the array of risks that come with new types of players, new technologies, ever-growing complexities of national and international regulations, as well as changing consumer behavior, require significant resource investments to address financial and other risks naturally occurring as a result of those changes. More than ever, chief risk and compliance officers play a critical role in monitoring and managing these risks to ensure a safe transformation of banking, and ensure continuity of their businesses.
In its simplest sense, risk could be defined as the uncertainty of an event to occur in the future. In the banking context, it’s the exposure to the uncertainty of an outcome, where exposure could be defined as the position/stake a bank takes in the market.
If history was any indication, banks have borne billions in losses due to imprudent risk-taking. It is hence vital to understand the different types of risks faced by every bank in 2018 and beyond.
Banking risks can be broadly classified under 11 categories:
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Business/Strategic risk
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Compliance risk
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Credit risk
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Cybersecurity Risk
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Liquidity risk
