Reputational risks

Reputational risks

These are risks associated with negative public opinion about an institution. Activities that consumer considers detrimental or dissatisfied possess reputational risk that could adversely affect an institution standing and reputation even if it has complied with the applicable laws and regulations. For instance, social media is greatly associated with transparency and privacy issues. This risk may come in several ways. For example, social media users may post negative comments or even hack the institution’s social media accounts and post or publish negative comments about the institution. Second, even on instances where the institution has adhered to laws regarding privacy, there is also a potential risk that a customer might post private and confidential information such as his or her account number or account statements on its social media platform. Reputational risk also arises when a financial institution fails to address a customer complaint in a timely or appropriate manner. The risk is enhanced when inappropriate or incorrect posts are made. Finally, engaging third parties to provide social media services increases a financial institution’s reputational risk. Consequently, financial institutions should frequently monitor information posted on their social sites and take necessary action where needed. Risk management policies should review education on the impact on social media on employees, independent contractors, subsidiaries, and affiliates.

Operational risks

Operational risk results from inadequate or failed systems and processes. It includes risks that face financial institutions due to the use of emerging information technology such as social media. Social media is one of the Information technology platforms vulnerable to fraudulent activities that may impact financial intuitions negatively, such as account takeovers, social engineering malware distribution, and Phishing scams. Financial institutions should, therefore, implement sufficient and regularly review controls that protect their systems and customers’ private information from viruses and other malware that can be quickly passed through social media platforms. Incident protocols response on security alert like such as account takeover and data breach should encompass social media platforms.

Conclusion

Social media has several advantages not only to the financial institution in the united states but globally and in all sectors. However, it comes with risks that the institution should be proactive in addressing to avoid unnecessary losses and remain competitive in such a dynamic industry. For instance, as social media is rapidly changing, Financial institutions should always look for and implement new laws and regulations that govern it to remain in compliance. There risk management processes should have necessary controls and oversight to address the legal and compliance risk, reputational risk and operational risks as discussed above.