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 44 to 53 form an integral part of the audited consolidated financial statements for the year ended October 31, 2022.
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: GENERAL BUSINESS AND ECONOMIC CONDITIONS Our financial performance is impacted by general business and economic conditions across Canada. The ongoing, and future impacts, of elevated economic uncertainty has increased certain risk factors that may impact our financial results. Potential for near-term volatility has increased over the past year and current economic forecast anticipate a slowing of the economic recovery next year with the potential for recessionary conditions to emerge. Several business and economic factors may affect the markets in which we operate. These conditions may include factors such as: elevated and prolonged levels of inflation; energy and commodity prices; the impact of supply chain disruptions; rapid 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. Extended periods of economic uncertainty have the potential to adversely impact our credit risk and could potentially 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. For details on how we manage the associated risks, refer to the Credit Risk and Market Risk sections. CYBERSECURITY RISK Cybersecurity risks remain elevated due to the potential for heightened malicious activity combined with the increased use of remote access platforms as our teams and many of our clients have adopted flexible work arrangements. We continue to be subject to elevated risks from cyber attacks and data breaches due to our reliance on remote connectivity, public digital platforms to conduct day-to-day business activities and increased use of third-party service providers. The adoption of emerging technologies, such as cloud computing, requires continued focus and investment to manage risks effectively. We remain vigilant to maintain 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 client offerings, 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. 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 highly specialized 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 our 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 require operational focus. In addition, we continue to monitor the impact and implications of OSFI regulatory guidance to be finalized in 2023 focused on risks and resilience related to operations, governance, and culture for all financial institutions. For details on how we manage these risks, refer to the Regulatory Compliance and Legal Risk section of our MD&A. CLIMATE RISK Climate- related risks continue to evolve and emerge driven by Canada’s commitment to transition to a net-zero economy by 2050 and the physical risks associated with severe weather events, which could result in a broad range of impacts on our business or the businesses of our clients. In addition to the potential for elevated credit, operational and strategic risks driven by climate factors, legal, regulatory or reputation risks could also arise from our and our clients planned approach to address climate change. For more details on how we manage these risks, refer to the Social and Environmental Risk section, under Business and Strategic Risk, of our MD&A.
44 | CWB Financial Group 2022 Annual Report
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