Financial Institutions

7 Crucial Issues Facing the Finance Sector

Reputational and Credit Risks are keen in banking, but those are not the only risks bedeviling the sector.
By: | June 22, 2018 • 4 min read

From a reputational perspective, the financial sector may have risk management needs that are more pressing than those in any other sector. At Wells Fargo, employee incentives and actions appear to have been diametrically opposed to the best interests of customers. That bank has paid millions in fines and settlement agreements with customers. For a populace still smarting from the financial crisis of 2008, the actions of Wells Fargo aren’t helping the reputations of banks.

Banks must also contend with political volatility that could lead to dire consequences for lenders. Political turmoil in Italy, the European Union’s largest debtor nation, has already sent shock waves through markets and could end up doing much worse. Italy, the third largest economy in Europe, has $2.5 trillion in debt outstanding, according to the Economist. These credit and reputation risks take a prominent place in our list of 7 crucial issues that are facing the financial services sector.

1) Failure to Engage Customers

Investors who put money into a CD or a savings account expect a return in the form of accrued interest.


But it’s been a long time since money market accounts and certificates of deposit offered anywhere near the return that they did prior to 2008. As the Fed continues to raise interest rates, thoughtful investors have to be asking themselves why their bank isn’t offering them a better rate of return. This raises the risk that investors will increasingly choose other investment options, including online banking, over depositing in brick-and-mortar savings and loan institutions.

2) The Human Element of Cyber Risk

Efforts are underway to do more to make bank employees a more vital part of bank cyber defenses. Breaking down silos between human resources, the chief information security officer, the CFO and operations management will be key to create a more coordinated effort to better train bank employees in detecting phishing and spear-phishing scams.

Optimists say banking employees are naturally compliance-oriented and will do well at this sort of training. Others worry that cyber criminals continue to find new ways to innovate and will always stay one step ahead of the corporate sector.

3) Operational Risk

Operational risk is the risk that can turn into a reputational risk for a financial institution in the span of one news cycle.

Any breakdown in internal processes, whether it be compliance, risk management’s oversight of trades and investing, or the failure of a bank’s investment models falls under this umbrella. In recent months there has been a consistent message emanating from the banking industry that it cannot find enough risk management talent. Some news stories say the shortage is so severe that banks are running a rising risk of compliance failures.

4) Technology Risk

As we see in the commercial insurance business, mergers and acquisitions can result in the combination or inheritance of outdated information technology systems.

The cost of getting legacy technology systems from different organizations to function together can be prohibitive. A lack of coordinated information technology systems can create a host of worries, including the fact that a cyber attack could go undetected for months due to poor management visibility into information technology functions.

5) Reputational Risk

Hundreds of thousands of false accounts created for customers, selling people unnecessary car insurance and on and on. Skeptics and critics wondered whether executives at Wells Fargo should not simply lose their jobs and their bonuses but also be sent to jail instead. Banking has a bad case of the reputational-risk flu and continued outsized salaries and bonuses for bank executives, coupled with meager interest rates being offered to depositors don’t promise an effective or timely cure.


6) Credit and Investment Risk

Yes, it’s an interconnected global economy and 2008 taught us how a risk management failure in one part of the economy (in that case, poor decision-making around investing in collateralized debt obligations) can lead to global economic turmoil.

History does repeat itself, but there are indications that the next trigger that results in credit losses may come from political instability. It could be political developments in Italy, the largest debtor nation in Europe, or it could be conflict in the Middle East.

Either way, whether banks have sufficiently girded themselves against these risks won’t be known until the waters of turmoil recede.

7) Regulatory Pressure Forces Talent Out

“Traditional” banking is subject to so much regulation that the pressure to comply with it may force financial services talent out of an established institution toward, for example, a fintech start-up.

Take this risk in conjunction with the above risk that banks are failing to engage customers and it doesn’t take too much effort to imagine droves of customers and employees deserting banks in coming years. &

Sources include The Economist, Willis Towers Watson and CFC Underwriters.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

The Profession

Curt Gross

This director of risk management sees cyber, IP and reputation risks as evolving threats, but more formal education may make emerging risk professionals better prepared.
By: | June 1, 2018 • 4 min read

R&I: What was your first job?

My first non-professional job was working at Burger King in high school. I learned some valuable life lessons there.

R&I: How did you come to work in risk management?

After taking some accounting classes in high school, I originally thought I wanted to be an accountant. After working on a few Widgets Inc. projects in college, I figured out that wasn’t what I really wanted to do. Risk management found me. The rest is history. Looking back, I am pleased with how things worked out.

R&I: What is the risk management community doing right?


I think we do a nice job on post graduate education. I think the ARM and CPCU designations give credibility to the profession. Plus, formal college risk management degrees are becoming more popular these days. I know The University of Akron just launched a new risk management bachelor’s program in the fall of 2017 within the business school.

R&I: What could the risk management community be doing a better job of?

I think we could do a better job with streamlining certificates of insurance or, better yet, evaluating if they are even necessary. It just seems to me that there is a significant amount of time and expense around generating certificates. There has to be a more efficient way.

R&I: What was the best location and year for the RIMS conference and why?

Selfishly, I prefer a destination with a direct flight when possible. RIMS does a nice job of selecting various locations throughout the country. It is a big job to successfully pull off a conference of that size.

Curt Gross, Director of Risk Management, Parker Hannifin Corp.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

Definitely the change in nontraditional property & casualty exposures such as intellectual property and reputational risk. Those exposures existed way back when but in different ways. As computer networks become more and more connected and news travels at a more rapid pace, it just amplifies these types of exposures. Sometimes we have to think like the perpetrator, which can be difficult to do.

R&I: What emerging commercial risk most concerns you?

I hate to sound cliché — it’s quite the buzz these days — but I would have to say cyber. It’s such a complex risk involving nontraditional players and motives. Definitely a challenging exposure to get your arms around. Unfortunately, I don’t think we’ll really know the true exposure until there is more claim development.

R&I: What insurance carrier do you have the highest opinion of?


Our captive insurance company. I’ve been fortunate to work for several companies with a captive, each one with a different operating objective. I view a captive as an essential tool for a successful risk management program.

R&I: Who is your mentor and why?

I can’t point to just one. I have and continue to be lucky to work for really good managers throughout my career. Each one has taken the time and interest to develop me as a professional. I certainly haven’t arrived yet and welcome feedback to continue to try to be the best I can be every day.

R&I: What have you accomplished that you are proudest of?

I would like to think I have and continue to bring meaningful value to my company. However, I would have to say my family is my proudest accomplishment.

R&I: What is your favorite book or movie?

Favorite movie is definitely “Good Will Hunting.”

R&I: What’s the best restaurant you’ve ever eaten at?

Tough question to narrow down. If my wife ran a restaurant, it would be hers. We try to have dinner as a family as much as possible. If I had to pick one restaurant though, I would say Fire Food & Drink in Cleveland, Ohio. Chef Katz is a culinary genius.

R&I: What is the most unusual/interesting place you have ever visited?

The Grand Canyon. It is just so vast. A close second is Stonehenge.

R&I: What is the riskiest activity you ever engaged in?


A few, actually. Up until a few years ago, I owned a sport bike (motorcycle). Of course, I wore the proper gear, took a safety course and read a motorcycle safety book. Also, I have taken a few laps in a NASCAR [race car] around Daytona International Speedway at 180 mph. Most recently, trying to ride my daughter’s skateboard.

R&I: If the world has a modern hero, who is it and why?

The Dalai Lama. A world full of compassion, tolerance and patience and free of discrimination, racism and violence, while perhaps idealistic, sounds like a wonderful place to me.

R&I: What about this work do you find the most fulfilling or rewarding?

I really enjoy the company I work for and my role, because I get the opportunity to work with various functions. For example, while mostly finance, I get to interact with legal, human resources, employee health and safety, to name a few.

R&I: What do your friends and family think you do?

I asked my son. He said, “Risk management and insurance.” (He’s had the benefit of bring-your-kid-to-work day.)

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]