Innovation enters EMEA FIs’ top ten list of risks

Financial institutions in the EMEA region are feeling the pressure from new technologies, according to the results of a risk poll from Aon. Failure to innovate has entered the top ten list of risks at number five, while disruptive technology is also a new entry at number nine. In its 2017 EMEA Financial Institutions Industry Report, based on the Aon Global Risk Management Survey and Aon GRIP, the broker says companies face a real threat from disruption and fintech as they begin to hit their bottom lines. Some 24% of financial institutions say they have suffered financial loss in the past 12 months as a result of their failure to innovate, and 39% of EMEA financial companies concede they are not ready to adapt to the threat. The survey also revealed that less than half of EMEA financial institutions (46%) are risk-ready to meet the threat of disruptive technologies, with 9% reporting a financial loss as a direct result of disruptive technologies in the past 12 months. The number one risk facing today’s EMEA financial institutions – damage to reputation or brand – remains unchanged from the last survey in 2015. It is followed by regulatory and legislative changes in second spot. Enrico Nanni, chief commercial officer for EMEA specialty at Aon, commented: “The risk environment for financial institutions continues to evolve rapidly as the magnitude, scope and complexity of risk increases globally. In particular, reputation remains critical for financial institutions, and this is demonstrated in the continued ranking of damage to brand as the number one risk. It is also interesting to see that the evolving economic landscape and trend towards disintermediation is reflected in the entry of failure to innovate and disruptive technologies to the top ten risks, as financial institutions grapple with rapidly changing consumer and corporate habits.” Aon notes that despite the level of awareness over reputational risk, only 58% of companies are ready to meet the threat. At the same time, financial losses from reputation damage are comparatively low, with only 7% of EMEA financial institutions reporting related financial loss in the past 12 months. More significant losses come from increasing competition, with 53% of financial institutions reporting financial loss as a result, and economic slowdown, with 47% of EMEA financial firms linking losses to the threat. After entering the top ten in 2015’s survey, cybercrime continued its rise up the rankings for EMEA financial institutions and occupies fourth place in the 2017 report, up from seventh two years ago. Technology failure fell from third place to tenth position, but EMEA financial institutions reported 91% risk readiness. Looking ahead three years, Aon’s report predicts the top five risks facing EMEA financial institutions in 2020. The top five risks are predicted to remain the same, but in a different order – led by regulatory and legislative changes in first place, followed by economic slowdown, cybercrime, failure to innovate and damage to reputation. “Both EMEA and global respondents this year feel that ‘regulatory/legislative changes’ will be at the top of the risk table by 2020. While it has yet to take top spot officially, most observers would be unsurprised given the range of influences affecting EMEA and global financial institutions,” the report states. “From Brexit to Basel IV, GDPR and the Open Banking Standard, the sector faces a glut of regulatory obligations, which simultaneously restrict activities and add weight to existing compliance burdens while opening up new competitive markets in which fintech players and consumers will increasingly call the shots,” it adds. Aon notes that EMEA financial institutions are now more focused on claims services, which has become the number one priority for choosing an insurer, up from fifth position in the previous survey. Aon’s survey also identified a fall in demand for global programmes. “The popularity of global insurance programmes themselves – as a ‘catch-all’ solution for financial institutions – has waned. Between 2013 and 2017, EMEA financial institutions’ propensity to include key coverages like directors and officers and fidelity/crime within global programmes has fallen by as much as 17%, while property and general liability as a component of global programmes has also reduced,” Aon states. Aon’s top ten risks ranked by EMEA financial institutions in 2017 (2015 position) are as follows: Damage to reputation/brand (1) Regulatory/legislative changes (2) Economic slowdown/slow recovery (4) Cybercrime/hacking/viruses/malicious codes (7) Failure to innovate/meet customer demands (not in top 10) Growing burden and consequences of corporate governance/compliance (10) Increasing competition (5) Failure to attract or retain top talent (6) Disruptive technologies/innovation (not in top 10) Technology failure/system failure (3)

Innovation enters EMEA FIs’ top ten list of risks

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