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 42 to 50 form an integral part of the audited consolidated financial statements for the year ended October 31, 2023.
TOP EMERGED AND EMERGING RISKS 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. We monitor emerged and emerging risks that may affect our future results and take action to mitigate potential impacts, with further details on how we manage these factors with associated principal risks in the Risk Universe – Report on Principal Risks section of our MD&A. Particular attention has been given to the following: CONTINUED ECONOMIC UNCERTAINTY The ongoing economic uncertainty and elevated market interest rates have increased certain risk factors that have the potential to impact our financial results. A prolonged period of persistently high inflation could result in interest rates remaining elevated for longer than anticipated or could require additional policy interest rate increases beyond the current levels. Elevated market interest rates together with persistent inflation could also create the potential for stagflation, which would potentially limit the ability for policy interest rate decreases to respond to adverse or deteriorating economic conditions. Sustained elevated market interest rates have the potential to adversely impact our credit risk and could potentially result in higher credit losses, negatively impact our net interest margin, and reduce the market value of underlying collateral securing our loans. A significant adverse shift in the economic environment from higher interest rates or other factors could potentially put additional downward pressure
on our financial results. CYBERSECURITY RISK
Cybersecurity risks remain elevated due to the potential for heightened malicious activity combined with the increased use of remote access platforms. 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 continued adoption of emerging technologies requires 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. STRATEGIC EXECUTION RISK We continue to undertake major projects in alignment with our strategic direction, including a digital and payments transformation, enhancements to our client offerings, strengthening our underlying technology and cybersecurity infrastructure, and enhancing our capital and risk management tools. 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. Potential resource capacity constraints driven by the strategic reorganization of our operations and our continued focus on strategic execution may create operational challenges. 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. PEOPLE RISK Our ability to execute on our strategic and growth objectives is dependent on our people. This risk is elevated due to the combined impacts of our recent strategic reorganization of our operations as well as continued competition for specialized talent in our key markets , both of which may impact our ability to attract and retain team members. REGULATORY RISK The increase in new or revised regulations along with related data and information requests 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. We continue to monitor the impact and implications of OSFI regulatory guidance to be finalized in 2024 focused on risks and resilience related to operations, governance, and culture for all financial institutions. CLIMATE RISK The newly established regulations on how banks manage and report on these risks 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 approaches to address climate risk as part of Canada’s commitment to transition to a net-zero economy by 2050. We continue to progress our climate risk management capabilities to integrate climate-related risks into the risk management framework.
CWB Financial Group 2023 Annual Report | 41
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