KUALA LUMPUR, April 3 — Bank Negara Malaysia (BNM) has intensified its engagements with financial institutions on improving approaches to the measurement of operational risk as well as scenario analysis and stress testing.
The central bank said financial institutions have also been required to regularly update and test their operational incident response plans in order to identify and address gaps in prevention, response as well as recovery capabilities.
“In addition, the Financial Sector Cyber Threat Intelligence Platform (FinTIP) is expected to be operational by the end of the third quarter this year,” it highlighted in the second half 2019 Financial Stability Review released here today.
The platform is being established by BNM in collaboration with the industry to collate, aggregate, analyse and share cyber threat information from multiple trusted sources.
In the insurance industry, it said the Fraud Intelligence System facilitates more efficient identification and investigation of potential fraudulent motor claims using data analytics and scoring.
“Efforts are ongoing to enhance the fraud alert accuracy and quantify cost savings from its utilisation,” the central bank said.
These developments complement the Bank’s Operational Risk Integrated Online Network (ORION)50 which facilitates system-wide monitoring and early detection of operational risk trends, it said.
BNM expects an industry crisis simulation exercise planned for 2021 will provide an important opportunity to test current arrangements for responding to a crisis event both at the institution and system-wide levels.
This, in turn. will provide further insights for ongoing improvements to the financial system’s crisis preparedness and response capabilities.
According to BNM, occurrences of operational risk incidents in the financial system have risen amid increasing digitalisation and greater reliance on the third party service providers.
Nevertheless, it said the number of and total losses from these incidents have remained insignificant for banks, insurers and takaful operators relative to the volume of intermediation activities.
For banks and development financial institutions, total losses in 2019 from the materialisation of operational risk events accounted for 0.7 per cent of total profit before tax, compared to 3.1 per cent for credit risk losses.
BNM pointed out that almost all of the operational risk losses were attributable to trade finance related fraud, involving the recycling of used bills of lading and invoice reference numbers for fictitious trades.
In the insurance and takaful sector, it said operational risk losses were largely driven by fraudulent claims, typically in relation to exaggerated vehicle accident damage or injuries, and staged accidents or thefts.
As these types of fraud often involve multiple parties, many cases were difficult to prove and often remain unreported as fraud, the central bank said.
Consequently, total reported losses from the materialisation of operational risk events in this sector accounted for a much smaller proportion of total profit before tax which is less than 0.5 per cent.
Meanwhile, BNM said payment and settlement systems remained stable without major disruptions.
In 2019, a total of 5.1 million transactions amounting to RM56.8 trillion were settled via the Real-time Electronic Transfer of Funds and Securities System (RENTAS),51 equivalent to 37.8 times of Malaysia’s gross domestic product.
This represents an annual growth of 3.2 per cent in total volume and 2.9 per cent in total value. — Bernama