Emerging technologies pose the biggest risk to financial services firms, a new report by ORX has revealed, followed by cybercrime, climate change and geopolitical tension.
The speed of digital transformation, including the emergence of digital currencies, the different rate at which technologies are developing and the potential for risk profiles of businesses to be impacted if they fail to adopt technology at the right time were all cited as potential issues by firms.
Operational risk association ORX said respondents noted that traditional market players will need to remain competitive against disruptive market entrants as a result of open banking APIs.
Cybercrime also featured on financial services firms’ radar, with cybercrime expected to evolve in a similar way to digital transformation, bringing “novel and unexplored” potential for cyber criminals to exploit a wider surface area of vulnerabilities.
Dr Luke Carrivick, director of research and information, ORX, said: “The speed of digital transformation, whilst already evolving at a rapid rate, has been accelerated by the Covid-19 pandemic, with major disruption to industries and how businesses operate. Digitalisation brings a host of benefits for the sector, but good operational risk management and practice is essential if your organisation is to make a successful transition to, and continue to operate well in, a digitalised world.”
The second and third biggest emerging risk factors were climate change and geopolitical tension. Concern around stranded assets and reputational factors surrounding how institutions respond to climate change remained the primary focus, the findings showed.
Respondents also warned that geopolitical tension may drive additional cyber threats to industries, with cyber warfare and politically-motivated cybercrime capable of impacting businesses and the wider financial services industry.
Dr Carrivick added: “What is most interesting is to see how the risks are interrelated. For example, as physical climate risks materialise, geopolitical risks, such as the risk of failing states, may become a key concern and potentially drive new cyber threats.
“This year’s ORX Horizon report has highlighted that the way in which we view emerging risks is changing. Now more than ever we are understanding them via a set of interconnected emerging risk factors, which can be continuously monitored to account for the rapidly changing environment. In comparison to a narrow focus on specific risks, this approach provides a more robust and flexible way to anticipate what the most material future challenges will be. We expect next year’s report to see that pattern once again.”
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