Cyber crime fears dominate UK Banking Banana Skins' threat rankings

Published at 07:00 AM on 08 December 2015

‘Banana Skins’ poll identifies top threats to banks

 

UK bankers and market watchers now place fears about cyber crime at the top of a list of 24 possible risks to banks, a view slightly at odds with many countries around the world which rate the economic environment as posing the greatest risk. 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.

State of the global economy of concern in all geographic regions

 

A breakdown of responses shows that all major respondent types (bankers, risk managers and observers) are strongly concerned about the state of the global economy. Economic concerns are also strong in most geographic regions. “These results show that many people fear that the economic recovery will fail and cause severe damage to the banking system. This is a worrying prospect,” said David Lascelles, the survey’s editor.

 

Some marked differences between the UK and the rest of the world included: 

 

Higher concerns:

  • Corporate governance: weakness at the top of banks is viewed as a much more severe risk in the UK than the world at large. · Management incentives: similarly, seen as more of a problem in the UK than elsewhere. · Reputation risk: Ranks No. 6 in the UK but only No. 12 elsewhere.

Lower concerns

  • Interest rates: banks are prepared for QE “normalisation”. · Capital availability. Plenty of capital available for healthy banks. · Political interference. Seen to be on the wane. · Credit risk. Seen as a waning risk by bankers and risk managers, though less so by observers of the business.

Banking Banana Skins 2015

World

UK

1

Macro-economic environment

1

Criminality

2

Criminality

2

Macro-economic environment

3

Regulation

3

Regulation

4

Technology risk

4

Technology risk

5

Political interference

5

Conduct practices

6

Quality of risk management

6

Reputation

7

Credit risk

7

Corporate governance

8

Conduct practices

8

Quality of risk management

9

Pricing of risk

9

Business model

10

Business model

10

Pricing of risk

11

Social media

11

Political interference

12

Reputation

12

Management incentives

13

Capital availability

13

Social media

14

Interest rates

14

Shadow banking

15

Emerging markets

15

Emerging markets

16

Shadow banking

16

Credit risk

17

Currency

17

Liquidity

18

Liquidity

18

Capital availability

19

Corporate governance

19

Interest rates

20

Management incentives

20

Reliance on third parties

21

Derivatives

21

Derivatives

22

Human resources

22

Human resources

23

Reliance on third parties

23

Currency

24

Sustainability

24

Sustainability

       

ENDS

 

For further information, contact:

David Jetuah

PwC

02072121812

[email protected]

David Lascelles

CSFI

T: +44 (0)20 7621 1056 or +44 (0)7710 088658

E: [email protected]

 

Notes to Editors:

  1. The Banking Banana Skins 2015 survey was conducted in September and October 2015 and is based on 672 responses from 52 countries. The breakdown by type of respondent was:                                                              %Risk Managers and Regulators                 25
  2. Observers                                               38
  3. Bankers                                                  37
  4.  

In the UK, there were 113 responses from: 

Bankers

22

Observers

80

Risk managers

11

   
  1. The survey is the latest in the CSFI’s long-running Banana Skins series which provides regular snapshots of the risk landscape in the financial services sector. The report can be downloaded from PwC’s website: www.pwc.com/bankingbananaskins
  2. The CSFI (Centre for the Study of Financial Innovation) is an independent not-for-profit think tank based in London which researches the future of financial services. It has an affiliate in New York, New York CSFI. www.csfi.org.uk
  3.  At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.


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About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. © 2016 PwC. All rights reserved

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