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Financial Institutions Face Mounting Operational Risks Amid Rapid Digital Transformation
The financial sector is facing a perfect storm of operational risks, as the rapid evolution of digital technologies and shifting regulatory landscapes threaten to disrupt business operations. A recent survey by Aon reveals that 26% of financial institutions have suffered losses due to these risks in the past year, while only 60% have plans in place to respond to them.
Top Risks Threaten Financial Stability
The top 10 operational risks facing financial institutions include:
- Cyber attacks or data breaches
- Regulatory changes
- Failure to attract or retain top talent
- Economic slowdowns
- AI-related risks
These risks are interconnected and can have far-reaching consequences for financial stability.
Digital Assets and AI Pose New Challenges
The rapid growth of digital assets and AI use in the absence of prior experience and regulation has created new risks for financial institutions. The improper identification and quantification of digital assets could lead to losses, while AI-enabled fraud is becoming increasingly common.
Financial Institutions Must Act Swiftly
To mitigate these risks effectively, financial institutions must adopt a holistic approach that integrates:
- Training
- Communication
- Reskilling
- Building strong employee value propositions (EVPs) that balance pay with other benefits
Retaining talent will depend on building strong EVPs.
Quantification and Risk Transfer Critical
Proper quantification of top operational risks is essential for effective risk management. Financial institutions should also consider:
- Integrating loss quantification, scenario analysis, and insurance optimization across top operational risks
- Long-tail risks can be easily overlooked, and exposures related to digital and crypto assets could be catastrophic.
Aon Offers Expertise in Risk Management
As a leading global professional services firm, Aon offers expertise in risk management, including:
- Captive insurance solutions
- Cyber insurance
- Errors and omissions liability insurance
- Climate risk consulting
Our experts can help financial institutions develop tailored strategies to mitigate operational risks and ensure business continuity.
Disclaimer
This document is for informational purposes only and does not constitute legal or professional advice. Aon disclaims any liability for reliance on this information. Any recipient shall be responsible for the use to which it puts this document.