The Greatest Risk Factors Facing Banks in 2020 and Beyond

Since the financial crisis of 2008, banks have taken a different approach to risk management strategies in order to avoid the pitfalls of their previous mistakes. While many of those changes ended up being put into motion because of new regulations made to prevent another crisis entirely, advancements in technology have not only raised expectations from consumers but have opened the door to unprecedented risks.

Risk factors in the banking industry are evolving at breakneck speeds, causing banks to scramble to have to patch up their networks while also developing their technologies to keep up with customer demand. With this in mind, it’s important for banks to understand the greatest risks they face in 2020 and what to expect moving forward.

Compliance

With increased regulation since 2008, banks are having to stay in line with increased regulation as well as risks that come from failure to implement the changes that are necessary to keep up with expectations. Banks must comply with rules and regulations set forth by the CFPB as well as Dodd-Frank, which was scaled back a bit in recent years because it was looked at as too harsh on smaller banks.

Banks can become faced with the challenge of resolving conflicts in their day-to-day business as a result of the new regulations. Smaller banks can experience more pressure on their leadership to keep up with regulations and rules, having to sacrifice time from other duties to address compliance.

Conduct

Another major risk factor that banks face today is conduct risk. This concerns the consequences resulting from how banks offer services to their customers and how these banks perform when it comes to their competition. Banking practices as a whole have been put under the microscope since the 2008 financial crisis, resulting in the Consumer Financial Protection Bureau’s (CFPB) forming, meant to educate the public about abusive banking practices.

Any inappropriate conduct displayed by a bank, such as misrepresentations about financial products, can result in major lawsuits and fees as well as sanctions from claims of fraud. These issues put banks in the middle of ongoing and expensive legal battles that can only hurt a bank’s reputation and further business.

To combat claims related to conduct, banks can invest in specific insurance for banks, such as bankers professional liability coverage, which protects banks when it comes to claims. This kind of coverage provides resources needed to withstand a lengthy legal issue and help to pay out settlements if it gets to that.

Cybercrime

Cybercrime is a frontrunner for risks in banking today. Expanding digital banking service channels and the sophistication of cyberattacks have enhanced the opportunities for hackers to take advantage of vulnerabilities. Banks are on the hook for not only losing money and data but for taking on reputational damage as a result of losing sensitive information.

When a data breach concerning a bank hits the news, many of the targeted banks’ customers start to run, transferring their accounts to other banks. Consumers who are thinking of changing banks will overlook the financial institutions at the center of a scandal, hurting growth in clientele.

About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.