Cyber crime fears dominate UK banks’ threat rankings

Banks are seen as prime targets for financial crime, particularly cyber crime, and this has now eclipsed fears of an economic slump or the fallout from intense regulation among the UK banking community.

The threat tops the watch list of 113 UK bankers, observers and risk regulators surveyed as part of the the CSFI’s latest global annual survey, conducted in association with PwC, ‘Banking Banana Skins 2015’, which was unveiled today at the annual risk management conference, RiskMinds 2015, taking place in Amsterdam.

One UK respondent said: “We may at some point see a cyber attack so powerful on an individual bank that it has the power to bring down the institution, necessitating a state bailout.”

The hacking threat is also a concern globally as cyber criminals target the weak links in a closely interwoven worldwide banking system. Among the 672 bankers, banking regulators and close observers of the banking industry in 52 countries who participated worldwide, criminality was No 2 on the list behind fears of economic volatility.

In the UK, doubts surrounding the ability of banks to manage the growth in crime are also under question, as shown by strong concern about the quality of technology (No.4 vs Global No.4) and risk management systems (No.8 vs Global No.6).

Simon Hunt, UK head of banking and capital markets at PwC, said: “Although much work has been done by banks and their regulators to strengthen risk controls, banks still have more to do to address the scale of risk and its ever-changing nature.

“The survey shows a fairly strong global consensus that the main threats to banking safety come from areas such as criminality, which has shot up the rankings dramatically, technology risk, and conduct practices.

“Also of note is the risk associated with an organisation’s business model which has not previously featured. The fact that it features in the top 10 overall, and has ranked consistently high globally, shows it is receiving a lot of thought.”

The UK results resemble those of North America where the Americans and the Canadians are more concerned with criminality than with the macro-economic outlook, possibly because of stronger economic growth.

Generally, the UK responses produce a picture in which many of the crisis-related risks (credit, liquidity, capital etc.) and the public sector aftermath (political interference, excessive regulation), are beginning to ease.

But these are being replaced by a set of institutional risks (i.e. risks more within the banks’ management control), notably ageing technology, reputational risk, poor business conduct practices and weak internal governance and risk management systems. These risks, however, tend to be scored more strongly by observers of the banking scene than by bankers themselves.