ECB published a report on the outcome of the Supervisory Review and Evaluation Process (SREP) IT risk questionnaire. The report presents the key observations and conclusions based on an analysis of the IT risk questionnaire, for which self-assessments were submitted to ECB Banking Supervision in the first quarter of 2019 by the significant supervised institutions. The key observations are in the areas of IT governance, data quality management and IT risk management, data integrity risk, IT security, IT outsourcing, and IT audit and examinations. Overall, the institutions reported an improvement in addressing critical findings, though the majority of critical findings not addressed for more than a year are related to IT security risk. Considering the increasing use of IT outsourcing, including cloud computing, ECB Banking Supervision emphasized that it expects full compliance with the applicable regulation regarding outsourcing within the respective timeline.
In the light of the EBA guidelines on Information and Communication Technology (ICT) risk assessment under SREP, ECB Banking Supervision together with the national competent authorities developed a dedicated SREP IT risk assessment methodology. This includes the IT risk questionnaire as a form of standardized information collection from supervised institutions for the comprehensive assessment of all IT risk areas. Throughout 2019, ECB Banking Supervision has continued to treat IT and cyber risks as a supervisory priority. The recent horizontal analysis reveals a number of observations:
- The supervised institutions are seen to have shifted to more prudent self-assessments, but for some IT risk areas they remain too optimistic in their self-assessments. IT governance has been characterized by overly optimistic self-assessment by the institutions while data quality management and IT risk management were reported as the weakest among all areas.
- The analysis shows that data integrity risk continues to be of concern. It is desirable that institutions align their data quality frameworks with the ECB Banking Supervision letter that had set out supervisory expectations on risk data aggregation capabilities and risk reporting practices.
- With respect to IT security, the analysis confirmed that IT security continues to be a significant challenge for institutions. It also highlights the need for institutions to further improve their IT security control measures. From a general point of view, IT and cyber risk should form part of the banks’ general risk governance and management framework, and there should be broad awareness of these risks across the entire organisation.
- The continued reliance on end-of-life (EOL) systems for critical business processes requires a high degree of management attention. Therefore, it is desirable that institutions continue working on simplifying their IT systems and ensuring sufficient agility. ECB Banking Supervision plans to increase its focus on institutions that report having EOL systems supporting critical banking activities, with the aim of decreasing their dependency on EOL systems.
- The analysis showed an increase in IT outsourcing, with a slightly higher concentration of risk at the level of individual institutions. Several institutions have reported losses due to unavailability and/or poor quality of outsourced services. ECB Banking Supervision is placing greater emphasis on outsourcing activities, including cloud outsourcing, and their monitoring by the institutions. In line with the EBA guidelines on outsourcing arrangements, ECB Banking Supervision expects full compliance with the applicable regulation regarding outsourcing within the respective timeline.
- The institutions reported an improvement in addressing critical findings. The majority of critical findings not addressed for more than a year are related to IT security risk. It would be desirable that all of the institutions’ critical IT functions to be assessed by their internal IT audit functions.
This publication is designed to share insights from the analysis and increase awareness on the overall IT risk management within the supervised institutions. The desired outcome would be for institutions to further improve their resilience, which is seen as a critical factor for financial stability.
Related Link: Report (PDF)
Keywords: Europe, EU, Banking, SREP, Technology Risk, Governance, Outsourcing, Cyber Risk, Cloud Computing, EBA, ECB
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