60 percent of European banks expect capital requirements against non-financial risks* like IT failures, cybercrime or compliance issues to increase in the near future, with just under ten percent predicting requirements to increase by more than 50 percent, according to new research from KPMG.
Non-financial risks currently account for 10 percent of total losses in nearly half of European banks, while operational risk represents more than 10 percent of risk weighted exposures. A few banks attribute upwards of 50 percent of their total losses to non-financial risks.
Banks are seeing far greater supervisory scrutiny of how they manage risks around profitability, business models and risk culture and 80 percent expect it to become an even greater issue over the next 12 to 36 months. As a result, more than half of banks are planning a comprehensive overhaul of their framework for assessing and measuring non-financial risks.
Fiona Fry, Head of KPMG’s FS Regulatory Centre of Excellence, comments: “Banks and regulators are clearly turning their attention to non-financial risks which can have a huge impact on a bank’s bottom line. Most attention is currently being given to IT and compliance risks, whilst business and strategic risks are too often overlooked. In such a politically volatile environment, European banks need to be braced for change and so strategic and businesses concerns should really come higherup the list of priorities.
“We also found that many banks find it difficult to identify who owns responsibility for non-financial risks. Each of these risks tend to require specific know-how from a multitude of areas, and so specific risk management processes should be established, sooner rather than later.”
Notes to Editors:
Find the full report here
This survey was conducted amongst 36 European banks, of which 33 are supervised by the European Central Bank and three are outside the Single Supervisory Mechanism.
*For the purposes of this report, non-financial risks comprise all risks that are not credit, market, counterparty, interest rate or liquidity risk. They encompass operational, reputational, strategic and business risks, as well as disturbances in the management of financial risks.
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