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EY UK Head of Financial Services Media Relations; EY EMEIA Financial Services Brand Content Lead
Media relations professional and corporate storyteller. Focused on the financial services sector.
Amid unprecedented levels of global volatility and uncertainty, cybersecurity has risen to the top of the list of near-term risks for banks around the world, according to the latest EY and Institute of International Finance (IIF) bank risk management survey.
The 12th edition of this joint report is based on survey data from 88 banks across 30 countries and highlights the issues chief risk officers (CROs) view as the most pressing for their organizations now and in the future.
Today’s CROs face increased complexity caused by overlapping and correlated risks, nearly all of which seem to be increasing in urgency. In the short term, three out of four CROs identified cybersecurity risk as their top concern over the next 12 months (72%), edging out credit risk (59%).
“CROs are no longer juggling a tiered waterfall of risk, but a torrent of interwoven complexities that have rapidly evolved in a matter of months. The role of the CRO is in the spotlight; and, with geopolitical risk underpinning everything else on their agenda, they will need to find new and innovative ways to address competing demands. It is arguably one of the hardest jobs in the banking c-suite, facing new and hidden risks – particularly from increasingly sophisticated cyber-attacks, that will put increasing pressure on an already volatile environment.”
Credit risk overwhelmingly dominated global CROs’ attention (98%) in last year’s survey, but this year the worries are most pronounced among European CROs. Sixty-nine per cent of European banking CROs view credit risk as the top risk-management issue relative to 59% globally. In addition, more than three quarters (77%) of European CROs view it as a risk that requires the attention of the board of directors, relative to 45% globally.
Over the past year, rising geopolitical risk has added uncertainty to an already turbulent economic recovery, and has recorded the biggest rise year-on-year relative to the previous survey. The impact of the war in Ukraine from February 2022 has played out most strongly in the risk agenda of Europe’s banking CROs, with 62% of expecting geopolitical factors to demand greater levels of their attention over the coming year, relative to 28% globally.
“European banking CROs, board members and regulators are facing into a very different outlook relative to just 12 months ago, so it’s no surprise that risk agendas have moved markedly. While climate risk remains a priority area, war in Ukraine has precipitated a period of elevated market volatility and systemic inflation that continues to challenge Europe’s financial stability and confidence, and European CROs have understandably sharpened their focus on credit and geopolitical risk as a result.”
Geopolitical risks play out differently by region, with almost three quarters (70%) of North American CROs concerned about cyber warfare between nation states — substantially more than their peers in Europe (46%). For CROs in the Asia-Pacific region, more than three quarters (78%) are focused on China’s changing global role, and more than two thirds (67%) say they are most worried about ongoing changes within the global trade environment. Despite the regional differences, 59% of CROs agreed that market volatility from geopolitical risk would have ‘major or moderate-to-high’ impact on exposure to market risk.
According to the survey, CROs are not confident in their ability to defend against cyberattacks, with 58% citing their organisation’s inability to manage cybersecurity risks as their top strategic threat over the next three years. The number of CROs concerned about increased cyber-attacks manifesting from geopolitical risk jumped from 39% last year to 61% this year.
On climate risk, which topped the list of emerging concerns for CROs last year, 51% of organizations stated they only had a basic understanding of their climate risk exposure. The survey also highlights that only 37% of CROs see environmental risk as a top-five issue that will demand CRO attention during the next three years, a drop from 49% in last year’s research. European banks are leading the way in their understanding of both climate-change physical risks and transition risks, and 69% of European banks report either a complete or somewhat complete understanding, versus 39% globally.
Nearly three quarters (71%) of global CROs expect climate risk to be the most important concern for regulators over the next five years, far ahead of digitization (37%), data integrity (36%) and geopolitical risk (35%). Notably, a majority of CROs surveyed say they will prioritize risk from new technologies and digitization to a greater extent than regulators, who they expect to focus on data privacy and security.
“It’s clear that there’s an interconnectedness between the top risks identified by CROs this year – cybersecurity, geopolitical, and credit –and their underpinning networks. Ongoing economic volatility has only fueled the concern that CROs will be navigating an increasingly complex risk landscape over the next 12 months.”
Additional notable findings from the survey include:
For more information, read the full report.
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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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