Top 5 operational risk scenarios of 2020

  • 10 November 2020
A newer version of this report is now available, take a look at the Insights into Material Risks 2021 report for the latest information

The Insights into Materia Risks report from ORX Scenarios has revealed the top 5 operational risks that financial firms are creating scenarios for in 2020. Read on for analysis and the top 5.

Top 5 risks in the scenario library

1. Conduct risk

"Conduct risk continues to be considered as one of the most material risks in financial institutions."
ORX Scenarios: Insights into Material Risks Report

Top 5 operational risks in the ORX Scenarios library chart

Over 90% of the 54 financial organisations that submitted scenarios to the library submitted at least one conduct-related scenario.

They covered a wide range of scenario categories and included things such as corporate and retail mis-selling, the increased potential for employee misconduct driven by economic downturn and increased scrutiny from regulators.

2. External fraud

Fraud was the second biggest concern for financial firms, making up around 20% of the scenario library. While internal fraud is a worry, it was external fraud that made the top 5.

Cyber-related fraud is seen as a significant risk, and the increase in government-backed or mandated financial products is likely contributing to the overall fraud exposure.

3. Technology

"In today’s increasingly digital world, firms are focusing on maintaining a robust IT infrastructure to support the provision of services and remote working capabilities."
ORX Scenarios: Insights into Material Risks Report

In at third place was technology risk, which is being driven by the continued move towards digitalisation. Technology failures have the potential to cause serious operational disruption, and in today’s increasingly digital world firms are focusing on maintaining a robust IT infrastructure to support the provision of services and remote working capabilities.

4. Transaction processing & execution

Processing errors are clearly one of the key concerns for ORX Scenarios subscribers, with almost 60% of members submitting at least one processing error scenario.

Although the impact is seen as low (44% of the scenarios were given a 'low impact' rank), the overall volume indicates that this risk has the potential for significant consequences.

5. Financial crime

The fifth most common risk for which firms created scenarios was financial crime. This year's Operational Risk Horizon study, published in February, also featured this risk at fifth place, with the majority of that study's participants considering the main impacts to be regulatory.

Download the free report for more analysis

We've produced a summary report of the 2020 ORX Scenarios library, which you can download for free to read more analysis and information about trends in scenario practice. As well as the report, you can also watch our recorded webinar to hear our scenario experts discussing our findings (it's also available as a podcast if you'd prefer to listen to it)

Watch the webinar | Listen to the podcast | Download the report

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