Impact of coronavirus on operational risk: ORX News round-up

  • 22 May 2020

As the effects of coronavirus (Covid-19) spread across the globe, ORX has decided to provide a round-up of the operational risk impacts of coronavirus on financial institutions worldwide to help you manage this risk.

These summaries and stories are sourced by the ORX News service, and cover significant new developments and media stories. Follow the links to read the articles in full.

Latest coronavirus & op risk news:

Updates, 21 May

Impact on operations

Lebanon insurance companies to cover costs related to coronavirus

L’Orient-Le Jour reports on 21 May that the Minister of Economy has decided to impose on various public and private insurance companies the cover of medical costs linked to epidemics, in particular that of coronavirus.

Switzerland: additional funding for unemployment insurance and gradual abandonment of measures reports on 20 May that the Swiss Federal Council decided to set up additional funding of CHF 14.2b for unemployment insurance and to gradually abandon the measures in this area taken in conjunction with coronavirus. The abandonment of these measures will occur at the rate of the gradual recovery of the economy.

Singapore: financial institutions will be allowed to reopen for business on 2 June reports on 19 May that financial institutions that offer advice on banking, insurance and investment products, as well as private banks offering wealth management advice will also be allowed to conduct in-person meetings with customers if they have approval from the Monetary Authority of Singapore (MAS), the regulator said.

Actions to help clients

The Indian Bank Association (IBA) seeks the easing of regulatory norms reports on 21 May that lenders have sought the easing of non-performing assets (NPA) norms, one-time restructuring, and extension of the moratorium until the end of August for borrowers affected by the coronavirus situation.

Tanzania: Stanbic provides debt relief for 265 borrowers reports on 20 May that Stanbic Bank Tanzania has provided debt payment holiday for its 265 clients with exposure of over TZS 37bn to cushion the coronavirus impact on the economy.

The holiday for between three and six months began last month for the tourism sector and has now expanded to the energy, transport and small and medium-sized enterprises (SME) sectors.

Martinique: Insurer Assurance Maladie helps companies finance their protective equipment reports on 20 May that since 18 May, Assurance Maladie offers the subsidy "Covid Prevention". The aim is to help companies with less than 50 employees and the self-employed to finance equipment for protection against the coronavirus, acquired by the companies between 14 March and 31 July.

Zurich Connect extends auto insurance expiration by 30 days in Italy reports on 20 May that the insurer has decided to extend the extension on car insurance policies to 30 days, the maximum applicable term. The extension of the payment increases up to 60 days for those who reside in the areas most affected by the virus.

Heightened risk

Nigerian insurance sector sees an upsurge in health, travel and business claims, 20 May

Financial Action Task-Force (FATF) warns of money laundering and terrorist financing risks

Cybercrime, fraud, fundraising for fake non-profit organizations, scams related to counterfeit medical devices are on the rise. National authorities and international bodies have highlighted these types of crimes, including scams, investment and product schemes, as well as insider trading in relation to coronavirus, reports on 20 May.

The Inter-African Conference on Insurance Markets (CIMA) disapproves of Cameroonian insurers' refusal to compensate for coronavirus claims

Claims resulting from coronavirus should not be subject to any exclusion not provided for in the contracts, Agence Ecofin reports on 20 May.

Coronavirus deflecting attention from other big threats

Peter Giger, group chief risk officer at Zurich Insurance says “we just experienced the realization of a risk that we didn't have on our radar and didn't manage properly” and that “the risk is that everybody focuses on mitigation and future prevention of this very risk and starting to ignore all other risks” such as climate change, S&P Global reports on 19 May.

2 US insurers see $48b in unrealised gains due to drop in value of equities

S&P Global, 15 May

UK’s Financial Conduct Authority (FCA) test case to clarify uncertainty over whether small businesses can claim compensation for disruption caused by the coronavirus pandemic would be legally binding

Reuters, 15 May

Financial stability & regulatory

Tanzanian banks urged to support agribusiness recovery

Banks have been requested to provide liquidity to enable the struggling agri-businesses to recover from the impact of coronavirus, reports on 20 May.

US regulators temporarily change the supplementary leverage ratio to increase bank’s ability to support credit to households and businesses

Office of the Comptroller of the Currency (OCC), 15 May.

Updates, 18 May

Impact on operations

Monzo faces fundraising 40% valuation drop

British digital bank Monzo is planning to raise £70-80m to help tackle the difficulties of the pandemic according to the Financial Times on 15 May. The bank is expected to close a deal by the end of the month that would value it at £1.25 billion, down from its £2 billion valuation last June, with the majority of the new funding coming from existing investors.

Despite the pressures from the pandemic the bank will continue with its plans for expansion such as applying for a US banking licence and developing a business banking service in the UK.

Insurers obliged to pay out for coronavirus claims

A report published by the Ombudsman of private insurance in Switzerland has concluded that insurers are responsible for paying out claims for damages due to the coronavirus pandemic. Hospitality sector association GastroSuisse which has 20,000 members has called out some insurers for avoiding their obligations to pay out. Italian insurer Generali has stated that the conclusion in the report does not apply to a number of their policies and that they are in close contact with their policyholders, carefully reviewing any cases submitted to the Ombudsman reported Ticino News on 15 May.

Liberty insurance group braces for challenging 2020

South African insurance group Liberty, which is partly owned by Standard Bank, is preparing for a difficult second half of 2020 reported on 14 May. The group is concerned that insurance and investments will no longer be a priority for customers while they are experiencing financial pressures due to the coronavirus crisis. In a statement the insurer added “We also expect increased pressure on new business volumes and margins given the extended lockdown period”.

Bank of America to issue $1bn “virus bond”

American Banker reported on 14 May that Bank of America would price a $1 billion bond issue to fund coronavirus relief efforts, the first sale from a U.S. financial institution that explicitly links all proceeds to tackling the virus according to Bloomberg. Companies in China, South Korea, and Paraguay have previously issued “pandemic bonds”, and in the US Pfizer Inc. and USAA Capital Corp have sold sustainability bonds to fund social and environmental projects, some of which include coronavirus relief.

Actions to help clients

Banks under fire from customers awaiting government-backed loan decisions

BBC News reported on 16 May that they had seen “a string of complaints about leading banks, including Santander, HSBC and Barclays, from customers who have been unable to get any money.” These complaints come from customers who have applied for the UK government-backed Bounce Back Loan Scheme. The BBC reports that while hundreds of thousands of loans have been approved, some struggling customers have experienced waiting times of over two weeks for a decision or encounter technical issues when applying.

Heightened risk

Lenders allow digital signatures on loan applications

According to Australian Broker on 18 May, ING has become the latest bank to allow customers to sign home loan applications electronically, using platforms such as DocuSign. This is in addition to a recent decision to allow brokers to identify applicants via digital video technology.

ECB warn against IT and cyber risk

The European Central Bank (ECB) has issued a reminder to banks that they may be particularly vulnerable to IT and cyber risks during the coronavirus crisis. Due to the pandemic, institutions are heavily relying on IT systems while branches are closed and movements are restricted, which increases their exposure to cyberattacks and IT infrastructure failures. The ECB’s latest analysis “shows that many banks’ critical banking services still depend on end-of-life systems, and that the use of IT outsourcing is increasing, with some banks concentrating on only one provider” reports Finextra on 18 May.

Financial stability & regulatory

Banks probe sales push linked to corporate loans

On 18 May the Financial Times reported that a number of banks including Barclays, Deutsche Bank, HSBC and Santander are carrying out internal reviews of their investment bankers’ activities during the pandemic. This follows a letter issued last month by the UK Financial Conduct Authority (FCA) regarding “credible reports” that a small number of banks were pressuring corporate clients to purchase additional services in order to access lending. Some of the banks in question have issued statements reassuring the public that such reviews are standard practice after a letter from the FCA.

HSBC cuts 2020 global GDP growth forecasts again, predicting a contraction of 4.8%

Reuters, 15 May

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ORX News coronavirus operational risk news round-up 21 May 2020

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