Risks Associated With TSPs

Operational risk is the primary risk associated with TSP processing. Operational risk may arise from inadequate or failed internal processes or systems, the misconduct or errors of people, and adverse external events. Operational risk also may affect other risks, such as credit, interest rate, liquidity, price, compliance, strategic or reputation. Other risks associated with TSPs include:
  • Reputation risk. Errors, delays, or omissions in IT that become public knowledge or directly affect customers can significantly affect the reputation of the serviced financial institutions. For example, a TSP's failure to maintain adequate business resumption plans and facilities for key processes may impair the ability of serviced financial institutions to provide critical services to their customers.
  • Strategic risk. Inaccurate information from TSPs can cause the management of serviced financial institutions to make poor strategic decisions.
  • Compliance (legal) risk. Inaccurate or untimely data related to consumer compliance disclosures or unauthorized disclosure of confidential customer information could expose financial institutions to civil money penalties or litigation. For example, TSPs often agree to keep disclosures or calculations in compliance with banking regulations, and their failure to track regulatory changes could increase compliance risk for their serviced financial institutions.
  • Credit, interest rate, liquidity, and price (market) risks. Processing errors related to investment income or repayment assumptions could increase these risks of serviced financial institutions.
The quantity of operational risk at a TSP is the level or volume of risk that exists. The quality of operational risk management is an assessment of how well risks are identified, measured, controlled, and monitored.


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