With electronic banking services becoming more popular with the progress of technology, the Central Bank of The Bahamas is warning financial institutions that there are certain risks they must guard against in introducing this new service.
In fact, the Bank has drafted a set of guidelines for institutions involved in electronic banking activities.
“Electronic banking creates new risk management challenges for licensees” the Central Bank notes.
Licensees are being advised that an e-banking service should be consistent with the bankﾴs overall financial strategy.
The Bank advises that, “The planning and decision-making process should focus on how specific business needs are met or enhanced by the e-banking product, rather than focusing on the product as an independent business objective.”
It also notes that operational or transaction risks arise from fraud, processing errors, system disruptions, and the inability to deliver products or services, maintain a competitive position, and manage information.
In the provision of e-banking services, banks often rely on outsourced software companies, the Central Bank indicates, adding that they require the proper management of information systems and the right capacity to service their customers.
“Contingency and business resumption planning is necessary for banks to be sure that they can deliver products and services in the event of adverse circumstances,” the guidelines note.
The Bank also points to technology risks, which relate to any adverse outcome, damage, loss, disruption, violation, irregularity or failure arising from the use of or reliance on computer hardware, software, electronic devises, online networks, and telecommunications systems.
These risks can also be associated with systems failures, processing errors, software defects, operating mistakes, hardware breakdowns, capacity inadequacy, network vulnerabilities, control weaknesses, security shortcomings, malicious attacks, hacking incidents, fraudulent actions and inadequate recovery capabilities, according to the Central Bank.
It says that in some circumstances, due to the more savvy nature of the e-banking consumer, traditional banking risks, such as credit risks, interest rate risks, liquidity risks, and foreign exchange risks are elevated.
Institutions involved in or considering the introduction of e-banking services need to also be aware that reputation risks arise from negative public opinion, according to the Central Bank of The Bahamas.
“A licenseeﾴs reputation can be damaged by e-banking services that are poorly executed or otherwise alienate customers and the public. It is important that customers understand what they can reasonably expect from a product or service and what special risks and benefits they incur when using the system. Customer education along with formal incident response and management procedures can help lessen reputation risk,” the Central Bank advises.
In addition, institutions also face a legal risk, it says.
This is the risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, or ethical standards.
The need to ensure consistency between paper and electronic advertisements, disclosures, and notices increases the potential for legal violations, the Central Bank notes.
It also says that regular monitoring of the licenseeﾴs websites will help ensure compliance with applicable laws, rules and regulations.
The Bahama Journal
