Credit and market risk are increasingly standardised among banks. But good operational risk management is a chance to stand out, writes Brian Caplen.
Let’s face it. good operational risk is not the area that most banks see as their distinguishing feature. Of course it needs to be effective and the regulator has to be satisfied that the bank is on top of its game. But in the CEO’s presentations to analysts, ops risk is hardly mentioned.
At a recent discussion with CIOs and security heads at major banks, it became clear that a good anti-money laundering and anti-fraud operation is not only a competitive advantage in terms of lowering costs, losses and vulnerability to fines but also has the potential to become a profit centre.
How so? The fact is that a bank's security is only as good as that of its customers and suppliers. If they have leaky and creaky ops then so does the bank. So it is very much in the interest of a bank to offer security checks as a service to clients.
One major European bank has taken this to its logical conclusion by charging for the service with the prospect of turning a cost centre into a profit centre. Good for that bank. But in terms of raising the system’s overall resilience to cyberattacks, CIOs complain of a lack of advanced information from crime enforcement in particular and a failure to communicate between banks, regulators and law enforcement in general.
Whereas the regulators have started to strictly guide banks on their credit and market risk (in terms of the capital held), they need to up their game in terms of co-operative working when it comes to operational risk. After all, it is the new frontier.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen
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