Non-financial risk

Risk management - banking - financial firms.

(NFR).

Non-financial risks are all risks that are not financial risks.

The concept is particularly important for banks and other financial firms where, historically, the management of non-financial risks may in some cases have been neglected.

Only a downside

"Non-financial risk, whether related to misconduct, non-compliance, IT, reputational, cybersecurity or operational challenges, is not linked directly to financial decisions and has only a downside.

In other words, unlike credit or market risk, here there are only potential losses, which can be large. In addition, non-financial risk can only be reduced or mitigated, but not eliminated, and it is far more difficult to quantify than financial risks.

Despite all these difficulties, or perhaps because of them, non-financial risk has been on [bank] regulators’ and supervisors’ radar for quite some time. In fact, it’s been more than 15 years since the Basel II capital accord included a capital charge for operational risk."

Margarita Delgado, Deputy Governor, Banco de Espana, 2019

See also

• Compliance risk
• Conduct risk
• Credit risk
• Cyberrisk
• Downside risk
• Financial
• Financial risk
• Guide to risk management
• Market risk
• Misconduct
• Operational risk
• Regulatory risk
• Reputational risk
• Risk
• Risk management
• Risk mitigation
• Systemic risk