Operational Risk Horizon 2019

In 2018 we ran our second annual Operational Risk Horizon study to see what the operational risk landscape will look like in 2019 and beyond. Forty-eight of our member institutions (11 insurers and reinsurers, and 37 banks) took part, each submitting a list of their top ten current and emerging operational risks.

The participants submitted a diverse range of risks – in total we analysed 444 current risks and 308 emerging risks. To facilitate analysis, they were asked to identify each risk submission with a category from the ORX reference taxonomy.

Read on for the key findings and to download a summary report. Members of ORX can log into the member-only website and download the full 2019 Operational Risk Horizon report for free – one of the many advantages of ORX Membership.

Study findings

The digital agenda continues to dominate the operational risk landscape in 2019. Financial services firms need to change rapidly to respond to technological innovation and remain competitive. They must do this while continuing to keep a watchful eye on conduct and fraud in particular.

Top risks remain static year-on-year

This is the second year we’ve produced this report, and several key risks remain relatively static. For example, information security and conduct risks remain the top current risks, far outstripping the next closest risk – fraud. Conduct’s high ranking is driven by retail misselling concerns from European participants, whereas information security is a key concern for all regions.

Similarly to last year, most risks are expected to increase, led by IT-related risks. ORX is continuing to support our members in this area with the recent launch of our cyber risk initiative. Digital disruption remains the top emerging risk, and we are seeing the risks evolve as technologies and marketplaces mature.

External pressures drive changes

The study has also revealed some interesting changes. The first is transaction processing, which has jumped up the rankings from seventh last year, potentially driven by some high-profile fat finger errors leading to increased regulatory scrutiny. In emerging risks, geopolitical tensions, including those around Brexit, US politics and international trade, have continued to build. This is reflected in this risk category rising one place to third this year.

Digital developments influence every risk

Overall, this year’s study shows that industry concerns are dominated by digital. But it must not be forgotten that digitalisation is impacting every risk in this study; no single risk exists in a vacuum. Future Operational Risk Horizon studies will continue to track these risks, providing a valuable benchmark for the financial industry.

Divergent views on emerging risks across banking and insurance

More insurance members took part in the study this year, which allowed us to create separate banking and insurance top 15 risk charts. The two rankings present very different pictures, particularly around emerging risks. Banking participants are demonstrably feeling the pressure of digital disruption, ranking it as their top emerging risk, whereas insurers appear to be less concerned. Instead, geopolitical risks are the top emerging concerns for insurers.

Key concerns are global

Regional analysis creates an image of overarching concerns with regional differences. Information security, conduct and digital disruption rank highly in all regions. In Europe, regulations and geopolitics are key issues, in contrast to people and third-party concerns in North America. The African rankings reflect the regulatory regime change in South Africa, and Asia/Pacific’s concerns are notably different from other regions, particularly the lower ranking of digital disruption risks.