Financial institutions face various strategic risks that can significantly affect their ability to remain stable and sustainable.
Senior management in critical areas such as Internal Audit, Risk & Compliance, Corporate Security, Credit, Operations, and IT must implement effective measures to manage risks in their respective domains. By doing so and regularly testing controls, credit unions can ensure long-term stability and provide reliable services to their members.
Proactive Risk Management with Analytics enables timely interventions, minimizing disruptions and ensuring that the organization remains focused on its core mission: 'Delivering exceptional service to its members'.
Poor or non-satisfactory member experience, or not tailoring products and services accordingly to help satisfy member’s financial needs and help them grow, can lead to membership losses to other institutions. As well, lack of awareness in member segmentation and demographics, and inability to retain member and attract newer members, could impact growth and stability, thus resulting is financial losses and institution’s reputation.
A positive member experience through effective and regular KYC touchpoints can lead to higher member satisfaction, loyalty, and retention, while a negative experience can result in attrition and reputational damage.
Potential that a borrower or counterparty will fail to meet their obligations as agreed, thus resulting in financial losses to the institution. This risk can arise from various activities, including loans, investments, and other financial contracts. In addition, there is also the potential effect that fluctuations in interest rates can have on the institution’s earning and overall financial health. As a result, effective credit risk and interest rate management is crucial for maintaining the financial health and stability of the institution.
Potential for financial institutions to face consequences due to risk of failing to adhere to laws, regulations, internal policies, and industry standards. This can lead to legal penalties and damage the credit union’s reputation. Regulatory and compliance risk are critical considerations for financial institutions. Effective management of these risks involves implementing robust compliance management systems, continuous monitoring, and staying updated with regulatory changes.
This refers to the potential for loss resulting from inefficiencies, inadequacies, and failures in internal processes, including system failures.
Operational risk is significant because it can lead to financial losses, regulatory penalties, reputational damage, and disruptions in service. Effective management involves identifying potential risks, implementing controls to mitigate them, and continuously monitoring and improving processes.
Adverse financial decisions or market conditions can lead to an institution losing its invested capital. Losses may also arise from fluctuations in market prices, such as interest rates, foreign exchange rates, and commodity prices. There is also the potential of risk that an institution will not be able to meet its short-term financial obligations due to an inability to convert assets into cash quickly or obtain funding at a reasonable cost.
Effective capital and liquidity management policies and practices can help ensure institutions have sufficient capital to withstand financial stress and continue operating safely, and that cash needs can be met without compromising financial stability.
Rapid technological changes can introduce new vulnerabilities, thus exposing the potential for loss of disruption due to failures or inadequacies in IT systems, processes, or infrastructure. More critically, there is also the potential for loss, damage, and reputation resulting from cyber threats and attacks.
Effective management of these risks involves implementing robust security measures, continuous monitoring, employee training, and staying updated with the latest cybersecurity practices and technologies.
