Financial Crime World

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Financial Institutions Face Heightened Risks: Legacy Software a Major Concern

The financial sector is facing a perfect storm of risks that could lead to system outages, loss of income, and erosion of customer trust. According to a recent survey by Aon, the top 10 risks facing financial institutions include:

  • Cyber attacks or data breaches
  • Regulatory or legislative changes
  • Failure to attract or retain top talent
  • Economic slowdown or slow recovery
  • Artificial intelligence

Legacy Software: A Major Concern

One of the most significant risks is the use of legacy or unsupported software, which can greatly exacerbate the likelihood of system failures. As the sector grapples with increasing demands for digital transformation and innovation, financial institutions that fail to modernize their technology infrastructure may find themselves struggling to keep pace with changing customer expectations and regulatory requirements.

The Importance of Talent

The survey also highlighted the importance of talent in mitigating these risks. Financial institutions that fail to attract or retain top talent may struggle to innovate or meet customer needs, potentially leading to a loss of market share and revenue.

Survey Findings

  • 26% of financial institutions reported suffering a loss due to the top 10 risks
  • 60% have plans in place to respond to these risks
  • Only 12% of respondents had quantified their cyber exposure, despite it being the industry’s most critical risk both now and in the future

Mitigating Risks Effectively

To mitigate these risks effectively, financial institutions must adopt a holistic approach that incorporates:

  • Training
  • Communication
  • Up-skilling
  • Integration of loss quantification, scenario analysis, and insurance optimization across top operational risks

Additional Considerations

Financial institutions should also consider integrating:

  • Climate risk consulting to better manage long-tail risks related to digital and crypto assets
  • Captive insurance solutions to further mitigate these risks

The Stakes Are High

The stakes are high for financial institutions that fail to adapt to these changing risks. By adopting a proactive approach to risk management, they can mitigate the likelihood of system outages, loss of income, and erosion of customer trust.

By taking a proactive approach to risk management, financial institutions can ensure their continued success in an ever-changing landscape.