Op risk losses reported by global banking companies continue to fall

  • 21 July 2022

Our latest Annual Insurance Operational Risk Loss Data report reveals a decline in total gross loss across the insurance community. This is despite the challenging environment created by both external threats, including geopolitics, cyber risk, the economy, and internal developments, particularly as the industry moves to digitalise.    

Trends and analysis from the op risk loss data 

In 2021, 85,585 operational risk loss events were submitted totalling €20.3bn in gross loss. 

This year’s report trends reveal: 

  • Lower total gross loss - Overall, total gross loss has decreased year on year since 2016, with an average decrease of €2bn per year, and a drop of €10bn total gross loss between 2016 and 2021. Gross loss as a percentage of income has decreased over the years since 2016 - the lowest value seen in 2021 at 1.5% 

  • Higher total number of events - annual loss frequency did increase in 2021 with 30,136 more loss events submitted than in the previous year and 16,351 more events submitted in 2021 than in 2016. However, some of this upward trend can be attributed to regional idiosyncrasies with event reporting in Latin American countries linked to Employee Practices & Workplace Safety 

  • Size of average risk loss event - The average size of an operational risk loss event in 2021 was €236,717 (largest annual average in the past six years was €436,487 in 2016) 

  • Percentage of total gross loss by top ten largest loss events - Over the last six years, the percentage of the top ten largest loss events ranged between 20-40% of total gross loss. In 2021 the ten largest losses accounted for €5.9bn, or 29% of total gross loss.  

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Banking business lines experienced the largest proportion of total gross loss in 2021 (57%), while Trading & Investment business lines incurred 22%, Corporate level losses 14% and other business lines the remaining 8% (figures rounded).

 

Steve Bishop, Research & Information Director at ORX comments: 

“This year we’ve seen the continued trend of lower gross loss, although we have seen the increase in the number of events reported. Given the levels of change facing global banks and the turbulent external environment, it will be interesting to see if the reduction in gross loss continues through 2022. 

“Next year’s results may well reflect the impact from the Ukraine conflict, particularly related to cyber security and economic turbulence linked with global security and supply issues.” 

Coronavirus pandemic 

The onset of the pandemic has altered the operational risk landscape and the risk profiles of financial institutions.   

ORX began tagging coronavirus-related losses in 2020 and since then 60% of ORX banking members have submitted related loss events with a total event gross loss of €3.4bn. 568 coronavirus events were reported during the period to end 2021 with a median gross loss of €136K. 

The latest report from ORX shows that losses tailed off as the world has returned to a more normal state and longer-term changes required have become part of business as usual (e.g., changes to the workplace and supporting a hybrid working environment). 

 

External fraud 

There was a significant spike in losses last year, with losses for 2020 reaching €5.5bn, more than double the figure seen in 2019. This increase shows the impact the pandemic had on the risk profiles of banks. However, external fraud losses have now reduced, and the number is in-line with previous years at €2.4bn. 

 

Conduct risk 

In 2021, conduct risk remains a key concern for financial institutions and an area of strong regulatory focus, not least because this risk type can cause large losses to financial institutions.  

10,582 conduct events were reported in 2021, amounting to €4.4bn gross loss.  

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Become a member of ORX to access loss data 

With ORX Membership, financial firms can anonymously and confidentially share operational risk data, gaining access to our global loss database. Firms can then use the database to benchmark themselves and perform analysis. 

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