The most significant rising risks to global financial institutions are technology, cybercrime, and business disruption.

These have been fuelled by the artificial intelligence explosion, as well as worries about the usage of cloud computing, which appear for the first time in this annual study, according to the 2024 ORX Horizon research into 48 global financial services businesses.

The Horizon survey, issued by ORX, the global operational risk association, indicated that cybercrime remained the top developing risk for the third consecutive year, followed by technology and digital strategy and business service disruption in third place.

The results

Figure 1: Normalised Borda scores based on participants’ rankings of the risk categories

In an additional division, participants were requested to identify and prioritise the top five technologies that present the highest risk to their companies in the upcoming 12-36 months, and five years.

AI and cloud computing were the forerunners, with both being listed as urgent priorities.

Figure 11: Values represent the normalised Borda count for each technology.

Natural language processing chatbots powered by generative AI technologies have significantly increased the profile of artificial intelligence in the past year.

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Future major worries include how this technology can be used by criminals or how it might affect how businesses operate now.

Moreover, companies are concerned about the possible concentration risk associated with the financial sector’s reliance on major technology vendors, even as the sector becomes more resilient in its use of cloud computing.

Steve Bishop, research, and information director at ORX shared: “The high levels of concern about technology & digital strategy as an emerging risk factor points to an increasingly integrated, digital, and data-driven working environment and risks around the growing reliance on key technology service providers.

 “Firms are telling us that the rapid development of generative AI is speeding up the adoption of new tools to keep pace with innovation and maintain competitiveness. But there are significant risks around this, including those related to data protection and regulatory compliance. Firms also want assurance over the design, integrity and reliability of AI based models. All this needs significant investment in risk management capability.”

The paper also highlights the following main risk challenges in AI adoption:

Monitoring and control

  1. ‘Loss of control’ over outputs from AI and machine learning tools
  2. Unexpected or inaccurate algorithmic results causing potential reputational damage
  3. Skills shortages or lack of training
  4. Reliance on manual controls to ensure accuracy of AI outputs

Ethics, data privacy and regulation

  1. Unregulated nature of AI increases the risk of fraud or cyberattacks
  2. Data privacy concerns due to a lack of confidence in data storage, transmission, and use
  3. Guidance on the ethical use of AI in business decision-making is limited
  4. Generative AI may use data that is protected by copyrights or IP rights, which could be breached  

Cybersecurity threats

  1. AI tools are reducing the barriers to entry for cyberattacks
  2. The capability for AI tools to be used to by-pass existing controls, identifying vulnerabilities

Following are some of the major risk issues with cloud computing:

Limited number of suppliers and the associated concentration risk

  1. Disruption or cyberattacks on these suppliers can cause widespread outages
  2. Supplier performance issues may have downstream impacts
  3. Limited supplier resources may restrict growth opportunities

Data security, management, and control

  1. Firms report a lack of visibility and monitoring around cloud service providers’
  2. Security and availability of client and customer data
  3. Monitoring and maintaining compliance with cross-border regulations  

Effective supplier management

  1. Switching between suppliers may be prohibitive due to cost and complexity
  2. Ineffective monitoring of supplier usage may lead to unbudgeted or unexpected costs

Bishop added: “We need to be closely monitoring the development and application of AI – tackling the challenge of managing the increasing reliance on third parties, whilst also boosting technical expertise inhouse with education and training to help mitigate the risk.

“It is a watching brief with both AI and the evolving use of cloud computing. We need to be continuously adapting and evolving our risk frameworks to keep up with the pace of change.”