However, increase in fraud is driving up annual loss frequency
Despite the challenging operating environment last year, banks have reported the lowest levels of gross operational risk losses seen over recent years, figures published by operational risk association ORX have revealed.
Still, annual loss frequency increased in 2022, with 16,020 more loss events submitted than in the previous year.
ORX said the increase in the frequency of reported events is in part down to a widespread increase in the number of external fraud events and as the impact is not seen at the gross loss level, the frequency can be attributed to an increase in low value fraud.
Banks from around the world that took part in the report point to an increased use of technology to facilitate fraud and wider economic environmental factors.
Last year, 76,620 operational risk loss events were submitted totalling EUR 17.8 billion (£15.4 billion) in gross loss. This represents an average decrease of EUR 1.6 billion (£1.4 billion) per year, and a drop of EUR 8.2 billion (£7 billion) total gross loss between 2017 and 2022.
In 2022, the average size of an operational risk loss event was EUR 232,166 (£200,682), and the largest annual average in the past six years was EUR 360,718 (£311,791) in 2020.
The ORX report also noted that the vast majority of loss events from 2017 to 2022 were experienced by retail and commercial business lines at 80%, while 6% were incurred by trading and investment, 10% by corporate items, and 4% by other business lines.
According to the report, 38% of firms experienced their highest ever number of external fraud events in 2022. However, despite the high frequency in 2022, these losses were lower on average than previous years, thus, the total gross loss last year was only €100 million (£86.5 million) higher than the previous year.
“This year, we crossed a million milestone, with the ORX global banking database now holding 1,041,000 events by 105 global banking members,” stated Steve Bishop, research and information director at ORX. “That’s €576.1 billion (£498 billion) in gross loss submitted in 21 years since we’ve been running this service; and the larger and richer the dataset gets, the better it is for allowing industry-wide benchmarking, observing trends, and building robust models.
“What we have seen in 2022 is low value fraud playing a large part in those figures, with our members telling us that fraud is being made easier for criminals by new technologies. It will, therefore, be interesting to see if increased use of Generative AI and other similar emerging technologies will increase figures next year, as we see this becoming more mainstream with a potential to be misused.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, Twitter, and LinkedIn.
