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Top 10 Operational Risks Facing Your Business

December 31, 2019

Financial services firms have a lot to consider when exploring operational risks, especially as these risks pose the greatest threat to business today. Read to explore the ten most common operational risks that organisations face in 2020.

1. Cyber Risk

The financial services sector faces a high risk of falling victim to a cyber-crime. Cyber criminals are becoming more sophisticated as time goes on, meaning organisations need to take action fast. Colleagues should work together, across the organisation to identify possible risks, and ensure that controls for these risks are tested on a regular basis.

2. Data Management and Privacy Risk

The European Unions General Data Protection Regulation (GDPR) has put pressure on firms to have good data management. With high profile companies hitting the headlines for data breaches, companies no, more than ever before, need to have processes in place so they know exactly what data they hold at all times. GDPR processes and policies need to be reviewed, tested and improved on an ongoing basis.

3. Digital Transformation Risk

In order to stay competitive, financial institutions feel pressure to transform themselves into digital enterprises. Many possible sub risks can come from this, such as strategic risks, IT risks, business risks, compliance risks, product risks and even cultural risks. When going through digital transformation, the operational risks team should keep a close eye on digital transformation projects, to ensure potential risks are identified and controls put in place to ensure a smooth transition.

4. Workforce Risk

As time passes, workforce structure and expectations change. Financial service firms are finding it difficult to hire professional staff, as often these professionals are in the Millennial or Generation Z bracket. A trend with these generations is that, often they prefer to work at start-ups, and do not like hierarchical structure. The type of working environment can have a big influence on what type of staff a firm has. A financial services firm may need to update or reconsider their working environment to mitigate workforce risks.

5. Outsourcing Risk

Outsourcing core functions increases the level of risk facing an organisation, and as a result, regulators put a lot of focus on this. Third parties can influence cyber risk, concentration risk and many other areas. It is important to make sure each third party undergoes strict due-diligence, ongoing monitoring and annual reviews. Automation of these vendor and outsourcing monitoring processes is becoming more common in recent years.

6. Operational Resilience Risk

Being resilient is an important trait to have as a firm. Supervisors in the financial industry should be ensuring that firms are able to bounce back from significant events, so that the financial system as a whole is protected from harm. The operational risk team should be making sure impact controls are in place, to avoid harm from being not resilient enough.

7. Conduct and Cultural Risks

Both conduct and cultural risks have come under scrutiny in recent years as regulators have pinpointed these as areas being undermanaged across the financial industry, with many firms having to pay big fines. The operational risk team should be working closely with colleagues in other governance, risk and compliance roles, and across the firm to enhance culture and accountability. Culture is quickly being recognised as a core component of any operational risk plans.

8. Political Risk

Political risk has always been a concern for the financial services industry. But with big changes like Brexit, and the Irish General Election recently having taken place, the financial services sector can expect a lot of possible changes, and for political risk to continue to become more of an issue. COVID-19 has now added to this risk and has organisations re-evaluating their Business Continuity Plans.

9. Climate Change Risk

Climate change is one of the most spoken about, and controversial areas at the moment, with protests and debates happening very often. Financial services firms are likely to see new laws and regulations come into place which will focus on how fairly customers are being treated by new climate-change oriented financial products. This area is rapidly evolving and progressing, so firms should keep a close eye on this topic and start putting climate change elements into their operational risk agenda.

10. Benchmark Reform Risk

Benchmark rates, also known as interest rate benchmarks and reference rates, are used in various different types of financial products and contracts and reflect what it costs for banks to borrow from each other. If benchmark rates are reformed, this could cause issues in the operational and legal department. The operational risk teams should ensure the benchmark reform projects are closely monitored and controls are in place to mitigate the risks posed by any changes that may occur.


ViClarity’s award-winning operational risk platform can help you automate your risk processes today. It is a core component of our overall Governance, Risk & Compliance solution. 



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