Financial institutions (FI) and fintechs face a variety of risks that must be managed to ensure the safety and soundness of their organization and the financial system as a whole. Unfortunately, the risk landscape for banks and fintechs is becoming increasingly complex, demanding further attention from organizations. Risk managers must prepare not only for today’s risk but those risks looming on the horizon. 

Top 7 Risks Facing Financial Institutions and Fintechs

#1 Operational Risk

Operational risk is the risk of losses due to inadequate or failed internal processes, systems, or external events. The category includes legal, technology, internal control, geopolitical, and third-party / supply chain risks. 

FIs are exposed to operational risks, whether intentional or unintentional, by people, internal processes, technology, and external events. Operational risk is highly complex and difficult to oversee, control, and manage because of the interconnectedness of the sources. In addition, leadership must ensure that incentive targets do not implicitly encourage inappropriate risk-taking.

Impact of Operational Risk

Below are two examples of banks in which operational risk mismanagement resulted in significant losses: 

Wells Fargo

Was fined $185 million for creating over 2 million unauthorized customer accounts between 2011 and 2016 in order to meet sales targets. The scandal resulted in the resignation of the bank’s CEO and a congressional inquiry.


Fell victim to accounting fraud by the German payment processor, Wirecard, which resulted in loan write-offs of over $200 million. 

#2 Credit Risk

Credit risk is the probability of losses due to a borrower’s failure to repay a loan or fulfill other financial obligations. It is the biggest single area of risk for banking institutions. This includes poorly managed credit risk concentration, especially during a downturn, which can quickly result in FIs becoming overexposed to a higher-risk segment. Typically inadequate credit risk management is due to deficiencies in measuring borrower’s credit risk and lack of mitigations to help offset potential loan losses.

For example, the 2008 Global Financial Crisis was the most severe financial turmoil since the Great Depression. It was primarily caused by a complex interconnection of cheap credit, loose lending practices, misguided housing market expectations, and a general lack of oversight on credit risk management by FIs. 

#3 Fraud Risk

Protecting customers’ data and assets, along with bank financial resources, from breaches and loss is becoming paramount in risk management. These incidents are increasing in both number and severity. Fraud not only impacts liquidity and the bottom line, but also erodes trust in the bank, and leads to a cascading impact on the bank’s overall health. Also, they are time-consuming for personnel, can result in regulatory penalties, and lead to customers taking legal action. Lastly, an indirect impact is the fear of cyber fraud inhibiting technology development and causing a dampening of innovation.

[LEARN MORE: Fraud is the Leading Risk for Financial Institutions]

#4 Reputational Risk

Reputational risk is the risk of losses due to negative publicity or damage to the institution’s reputation. Financial institutions are exposed to reputational risk through their interactions with customers, stakeholders, and the media. Managing reputational risk is critical in engendering goodwill, and maintaining and building the public’s and consumer’s trust. 

For example, HSBC, previously touted as “the best-run bank”, had grown lax towards risk management, leading to a $2 billion fine by the US government. The lack of controls fueled the deterioration of HSBC’s reputation and contributed to massive amounts of funds funneled through the bank by drug cartels. 

#5 Regulatory Risk 

Regulatory risk is the risk of losses due to non-compliance with laws, regulations, or standards. Financial institutions are exposed to regulatory risk through the evolving regulatory environment and the changes in laws and regulations. The proliferation of regulations since the 2008 financial crisis greatly increased the number and complexity of rules. For global institutions, the complexity is multiplied by overlapping and often conflicting statutory requirements. FIs not in compliance with regulations can be fined, sanctioned, and subject to increased regulatory oversight. 

Future Regulatory Risks

With concern over the impacts of economic shocks and a desire to support increased financial stability, the US government and many other countries are expected to continue expanding their FI regulations

As fraud continues to cause disruption, expect an increased focus on regulations for managing cybersecurity and IT risk in the US and other countries. Additionally, a near certainty is increased climate and ESG-related regulations and reporting requirements.

#6 Liquidity Risk 

Liquidity risk is the risk of losses due to the inability to meet financial obligations as they come due. Financial institutions are exposed to liquidity risk through their funding sources and the liquidity of their assets. They must be prepared for expected and unexpected cash flow and collateral needs without impacting their overall financial health. 

Any delays in providing cash for customers can quickly spiral into the bank’s customer base losing confidence in their ability to meet obligations resulting in a “run” on the bank.

#7 Market Risk

Market risk is the risk of losses due to changes in market prices, interest rates, or foreign exchange rates. Banks are exposed to market risk through their trading activities, investment mix, and market volatility. The unpredictability of interest rates, credit spreads, equity markets, and commodity prices drive market risk and the level of exposure for banks. 

As a result, banks must closely manage the sensitivity and probabilities of financial losses arising from movements in market prices or risk long-term damage to the institution.

[LEARN MORE: Case Study – Leading Bank Takes Fraud Prevention to the Cloud]  

End-to-End Financial Fraud & Risk Management

For financial institutions and fintechs, risk management is becoming increasingly difficult because of technological advancement, market, and societal volatility, blurring of lines between industry types, more sophisticated fraudsters, and increasing regulatory requirements. Trying to manage risk through legacy systems is no longer sufficient – new applications are required to automate and closely monitor your Risk Management environment. 

Fortunately, the use of AI in Risk Management is not in the future – it is here. has powerful AI-driven Risk Management tools to help your institution prevent or mitigate operational risk.’s Transaction AI has helped hundreds of leading financial institutions reduce fraud while saving time and money. Transaction AI harnesses your customer data with billions of insights from unique data sources available only to users, so you can better detect anomalies and manage fraud.’s comprehensive fraud solutions provide financial institutions and fintechs with a robust application toolset to improve Enterprise Risk Management. To learn more about our enterprise fraud applications, please contact our experts today for a free demo.

Want to learn more about the risks facing fintechs and financial institutions, and how you can mitigate it? Download our FREE eBook: Top 7 Risks For Financial Institutions and Fintechs.