Page 30 - Banking Finance April 2019

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development is well known. it is not as such an an awareness was created about how technology has
exaggeration to say that every economic activity is made the entire banking sector a large interconnected
inseparable from collecting and processing data. For world where risks are more dynamic and a risk
instance, demand forecasts, and production planning management framework which does not account for
and inventory management by firms, consist of large the changing ecosystem is unlikely to be an effective
amounts of data processing. Using digitisation, one.
employees-productivity are augmented continually. 20. Apart from the cyber security risks, there are other risks
Employment is also generated due to excessive use of
which regulatory authorities worldwide have started
data cleansing in financial sector. Release of extra man- recognizing as the by-product of wide-scale of
hours can be devoted by employees with information technology. The Financial Stability Board (FSB) has
for decision making in place of raw data which is to be cautioned that there will be an increase in dependency
converted into information. on third party - creating considerable amount of Third
Party Risk - at the end of systematically important
Risks arising due to Digitization players that could fall outside the regulatory radar.

“One of the main cyber-risks is to think they don’t exist. The Financial institutions will hence require reviewing their
other is to try to treat all potential risks. (Fix the basics, TPRM programs to continually manage the risks arising
protect first what matters for your business and be ready from them. Fintech use in risk management was done
to react properly to pertinent threats. Think data, but also to ensure better risk management and streamline
business services integrity, awareness, customer experience, processes. Now, with an increase in the scale, the
compliance, and reputation).” ¯ Stephane Nappo Fintech companies can possibly pose few risks to the
banking sector. The risk management in Fintech should
18. Digitalization is moving fast, and the adoption of new be done as per the practices followed in banks or in IT
technologies by the financial sector is moving alongside companies or both is a question whose answer needs
it. While there is no doubt about the benefits accruing to be found.
from digitalization, the benefits will not be reaped 21. There may also be macro financial risks emerging as of
properly, if we do not see and address the risks arising systemic importance and procyclicality could manifest
out of it. One of the most prominent risks that emerges from several sources, including from greater
is the cyber security risk. concentration in some market segments. This way,
19. While a lot is said about the cyber risks, I will just share funding flows on FinTech lending platforms could turn
my opinion on it and will then discuss other major risks to be larger and unstable. Digitization will also lead to
that may manifest themselves with large scale adoption an increase in cross border lending, payment
of the technology in financial firms. Cyber risk is a risk transactions, which will require cross border
similar to the conventional thefts wherein a thief will coordination for legal issues and regulatory
keep looking for a vulnerable house first. The pursuit
may continue for months to look for the vulnerability.
Then on a day when no one is present in the house, thief
will make his move to steal. The recent heist at
Bangladesh Bank was a prime example of cyber thief
bringing into fore this age-old technique used for
stealing by the use of cyber infrastructure. We need to
ensure that the weakest link in the cyber-attacks which
are generally the manual interventions in the system
are plugged sufficiently and regular vulnerability
assessment and penetration testing is done. In August
2018, a cooperative bank in India reported a Rs. 940
million losses due to a cyber-attack. Apart from the
magnitude of loss out of this attack, which was large,

30 | 2019 | APRIL | BANKING FINANCE