When you run a financial institution, you need to safeguard your resources and your clients from threats. That often starts with a risk assessment. To help guide you in the right direction, here’s a very brief overview of what needs to happen during a financial institution risk assessment.
Make a List of Products and Services
You may want to start by making a list of your products and services. That can include deposits, transfers, electronic funds payment services, ACH transactions, electronic banking, trust management, lending activities, and non-deposit services such as annuities or mutual funds. Depending on your specific institution, your list may include more or less than those examples.
Identify Areas with the Most Risk
Based on your list, try to identify which products or services have the most risk. In particular, you should look for areas where transactions are processed quickly and have built-in anonymity. For instance, if you process a high volume of ACH transactions, you may identify that as a risk area that needs a closer look.
In other cases, you may want to look for alternative risk markers. For instance, if you facilitate a lot of wire transfers to international areas, you may want to research which areas have the most online fraud and pay special attention to transactions involving those areas.
In some cases, risk can come from your customers, and you may want to identify which customers are the most likely to present high risks and monitor their activities accordingly. To identify potential risks, look at elements such as transaction volume, geographic location, residency status, and the origin and destination of various transactions. This should be a continuous process that starts with due diligence on new clients and continues with risk reassessment throughout your relationship together.
Find Risk Intersections
Ideally, you should put all these elements together and look for places where there are intersections between risks. For example, if there is an overlap between a type of customer you identify as potentially risky and a service you have also identified as risky, you may want to do an internal audit or a manual review of those activities.
Look at Risk Management Practices
A key part of your assessment should involve looking at your risk management practices. To explain, imagine you take precautions to prevent customers from depositing and making withdraws on bad checks. In this situation, you probably have safeguards in place to spot forged signatures, fraudulent checks, and similar risks.
While reviewing your practices, you should look at how well employees are trained in these practices. You should identify how consistently your safeguards work, and you should look into your advertising. You should keep a few of these details quiet so scam artists don’t have a blueprint that makes it easier to get around your system.
Risk management is a huge part of running a successful financial institution, and a risk assessment shouldn’t be a one-time thing. It should be an ongoing process that combines assessing risk with creating policies, using technology, and leveraging education in ways that effectively manage and reduce your risk.
To get help, contact us directly. At SQN Banking Systems, we make risk management easy. We help you stay on top of emerging risks and regulatory requirements, while providing the risk management tools you need.