Cyber crime fears dominate UK banking sector’s ‘Banana Skins’ threat rankings

The prospect of cyber crime is dominating the thoughts of senior professionals within the banking community

The prospect of cyber crime is dominating the thoughts of senior professionals within the banking community

UK bankers and market watchers now place fears about cyber crime at the top of a list of 24 possible security-related and other risks posed to banks – a view slightly at odds with many countries around the world which rate the economic environment as posing the greatest risk.

Banks are seen as prime targets for financial crime, particularly cyber crime, and this has now eclipsed fears of an economic slump or the fallout from intense regulation among the UK banking community.

The cyber threat tops the ‘Watch List’ of 113 UK bankers, observers and risk regulators surveyed as part of the Cyber Security Forum Initiative’s latest Banking Banana Skins 2015 global annual survey, conducted in association with PwC.

One UK respondent said: “At some point, we may see a cyber attack on an individual bank that’s so powerful it actually has the power to bring down that institution, necessitating a state bailout.”

The hacking threat is also a concern on the global stage as cyber criminals target the weak links in what’s now a closely interwoven worldwide banking system. Among the 672 bankers, banking regulators and close observers of the banking industry in 52 countries who participated in the survey, criminality was ranked second on the list only behind fears of economic volatility.

In the UK, doubts surrounding the ability of banks to manage the growth in crime are also under question, as shown by strong concern about the quality of technology (Number 4 versus Global Number 4) and risk management systems (Number 8 versus Global Number 6).

Speaking about the survey results, Simon Hunt (UK head of banking and capital markets at PwC), commented: “Although much work has been done by banks and their regulators to strengthen risk controls, banks still have more to do to address the scale of risk and its ever-changing nature. The survey shows a fairly strong global consensus that the main threats to banking safety emanate from areas such as criminality, which has shot up the rankings pretty dramatically, as well as technology risk and conduct practices. Also of note is the risk associated with an organisation’s business model which has not previously featured. The fact that it does now feature in the Top 10 overall, and has ranked consistently high on the global stage, shows that it’s now receiving much thought.”

UK and North America: views highlight similarity

The UK results resemble those of North America where the Americans and the Canadians are more concerned with criminality than with the macro-economic outlook, possibly because of stronger economic growth.

Generally, the UK responses produce a picture in which many of the crisis-related risks (ie credit, liquidity and capital, etc) and the public sector aftermath (ie political interference and excessive regulation) are beginning to ease.

These are being replaced by a set of institutional risks (ie risks more within the banks’ management control), notably ageing technology, reputational risk, poor business conduct or practices and weak internal governance and risk management systems. However, these risks do tend to be scored more strongly by observers of the banking scene than by bankers themselves.

A breakdown of responses shows that all major respondent types (bankers, risk managers and observers) are strongly concerned about the state of the global economy. Economic concerns are also strong in most geographic regions. “These results show that many people fear the economic recovery will fail and cause severe damage to the banking system,” said David Lascelles, the survey’s editor. “This is a worrying prospect.”

Some marked differences between the UK and the rest of the world include the following:

Higher concerns

*Corporate governance: Weakness at the top of banks is viewed as a much more severe risk in the UK than in the world at large

*Management incentives: Similarly, management incentives are viewed as being more of a problem in the UK than elsewhere

*Reputational risk: Ranks Number 6 in the UK, but only Number 12 elsewhere

Lower concerns

*Interest rates: Banks are prepared for QE ‘normalisation’

*Capital availability: Plenty of capital available for healthy banks

*Political interference: Seen to be on the decrease

*Credit risk: Seen as a lessening risk by bankers and risk managers, though less so by observers of the business

Banking ‘Banana Skins’ in 2015
World UK
1 Macro-Economic Environment 1 Criminality
2 Criminality 2 Macro-Economic Environment
3 Regulation 3 Regulation
4 Technology Risk 4 Technology Risk
5 Political Interference 5 Conduct Practices
6 Quality of Risk Management 6 Reputation
7 Credit Risk 7 Corporate Governance
8 Conduct Practices 8 Quality of Risk Management
9 Pricing of Risk 9 Business Models
10 Business Models 10 Pricing of Risk
11 Social Media 11 Political Interference
12 Reputation 12 Management Incentives
13 Capital Availability 13 Social Media
14 Interest Rates 14 Shadow Banking
15 Emerging Markets 15 Emerging Markets
16 Shadow Banking 16 Credit Risk
17 Currency 17 Liquidity
18 Liquidity 18 Capital Availability
19 Corporate Governance 19 Interest rates
20 Management Incentives 20 Reliance on Third Parties
21 Derivatives 21 Derivatives
22 Human Resources 22 Human Resources
23 Reliance on Third Parties 23 Currency
24 Sustainability 24 Sustainability
About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

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