Reputation risk is the risk that potential negative publicity regarding a financial institution's business practices could cause a decline in the customer base, costly litigation, or revenue reductions. Reputation risk is relevant to wholesale payment systems because of the large dollar value of the transactions. Errors or fraud can have serious ramifications on the public perception of a financial institution.
Management can mitigate reputation risk for wholesale payment systems by having an effective public relations program, by developing and maintaining strong customer relationships, and by enacting adequate internal controls over all aspects of the wholesale payment system so that errors do not happen in the first place.
Payments System Risk (PSR) Policy