RISK MANAGEMENT
The shaded areas of this section represent a discussion of risk management policies and procedures relating to credit, market and liquidity risks as required under IFRS, which permits these specific disclosures to be included in the MD&A. The shaded areas presented on pages 46 to 55 form an integral part of the consolidated financial statements for the year ended October 31, 2021.
TOP EMERGED AND EMERGING RISKS We monitor emerged and emerging risks that may affect our future results and take action to mitigate potential impacts. Our top emerged and emerging risks are those that could have negative implications for our operations and financial results as underlying operating conditions and external factors continue to evolve. Particular attention has been given to the following: COVID-19 AND GENERAL ECONOMIC CONDITIONS Our financial performance is impacted by general business and economic conditions across Canada. The ongoing COVID-19 pandemic and its impact on general business and economic conditions has elevated certain risk factors that may impact our financial results. Potential for near-term volatility remains, despite continued improvement in economic conditions and a gradual and ongoing return to a more normal operating environment for our teams and clients. Considerable uncertainty remains regarding the impact of the conclusion of government support programs on the Canadian economy, the credit quality of our borrowers and the outlook for new loan growth opportunities within our risk appetite. Further extended periods of curtailed economic activity, which may be impacted by the factors noted in the next paragraph, adversely impact our credit risk and could result in higher credit loss experience in future periods. Prolonged adverse economic conditions also have the potential to negatively impact the market value of underlying collateral securing our loans. In addition to the continuing impact of the COVID-19 pandemic, several other factors may affect the markets in which we operate. These conditions may include factors such as: energy and commodity prices; the impact of supply chain disruptions; inflation; changes in interest rates; real estate prices; adverse global economic events and/or elevated economic uncertainties; exchange rates; levels of consumer, business and government spending; levels of consumer, business and government debt; unemployment rates; labour constraints; and consumer and business confidence. For details on how we manage the associated risks, refer to the Credit Risk and Market Risk sections. CYBERSECURITY RISK Cybersecurity risks increased during the COVID-19 pandemic and remain elevated due to heightened malicious activity and increased vulnerabilities in remote access platforms as our teams and many of our clients continue to work remotely. We continue to be subject to elevated risks from cyber attacks and data breaches due to our heavy reliance on remote connectivity, public digital platforms to conduct day-to-day business activities and third-party service providers. The adoption of emerging technologies, such as cloud computing, require continued focus and investment to manage risks effectively. We remain vigilant regarding the effectiveness of our internal controls to mitigate increased information and cybersecurity risks. For more details on how we manage these risks, refer to the Operational Risk section of our MD&A. EXECUTION RISK We have undertaken major projects in alignment with our strategic direction, including a digital transformation, enhancements to our product offering, strengthening our underlying technology and cybersecurity infrastructure, and an ongoing transition to AIRB. Successful strategic execution is dependant on our ability to effectively manage change across CWB to achieve desired outcomes. Failure to successfully manage strategic execution could have a material adverse impact on our business, financial condition and results of operations. Resource capacity constraints driven by our focus on strategic execution have the potential to create operational challenges and impact our ability to serve our clients in a timely and effective manner. These challenges remain elevated as most of our teams continue to work remotely. For details on how we manage these risks, refer to the Business and Strategic Risk section of our MD&A. OUTSOURCING AND THIRD-PARTY RISK We continue to strategically use third-party service providers to expedite our access to new technologies, increase efficiencies, and improve competitiveness and performance. Our continued reliance on third parties exposes us to the risk of business disruption and financial loss stemming from the breakdown of third-party service provider processes and controls. For details on how we manage these risks, refer to the Operational Risk section of our MD&A. PEOPLE RISK Our ability to execute on our strategic and growth objectives is dependent on our people. This risk is heightened as competition for specialized talent in our key markets has increased, which may impact our ability to attract and retain team members. For more details on how we manage these risks, refer to the Operational Risk section of our MD&A. REGULATORY RISK The introduction of new or revised regulations continues to drive increased investment across CWB to meet additional requirements from multiple regulators. Financial and other reforms that have come into effect or are coming into effect, such as anti-money laundering, privacy and consumer protection regulations, continue to provide operational challenges. For details on how we manage these risks, refer to the Regulatory Compliance and Legal Risk section of our MD&A. The upcoming transition to CAR 2023 and the adoption of updated Pillar 3 reporting requirements tailored to SMSBs in fiscal 2023 is a significant initiative that we continue to focus on. The new capital requirements, which apply to the calculation of risk-weighted assets under both the Standardized and AIRB approach, may make certain lending markets more or less attractive from a capital perspective.
46 | CWB Financial Group 2021 Annual Report
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