Banks susceptible to cyber crime

Bank of Botswana indicates that the operational risk within the banking sector is expected to increase due to increased expansion on digitalisation by banks.

The Banking Supervision 2021 report revealed that last year operational risk grew from P7 billion in 2020 to P7.3 billion while the regulatory capital charge for operational risk increased by 4.7 percent from P1 billion to P1.1 billion in the same period. In 2021, all banks calculated the operational risk capital requirements using basic indicator approach ( BIA) in 2021. Over and above using BIA, one bank computed operational risk capital requirement under the standardised approach for operational risk, which is a more risk- sensitive method of determining capital requirements. According to the report, a review of internal controls of banks revealed that operational risk management deficiencies for some banks included lack of adequate separation of duties in some functions, compromised quality of underwriting practices and invalid insurance policies, inadequate review of policies and procedure manuals, and under- resourcing of some functions.

With the uptake of digitalisation, the banking Supervision stated that the instituted risk management measures were considered to be unsatisfactory. “For the ensuing 12 months, operational risk is expected to trend upwards, mainly influenced by expanding digitalisation of operations by banks, which increased susceptibility to cyber- crime risks.

The identified lapses in internal controls at some banks are likely to exacerbate operational risks.”

However, Bank of Botswana Governor, Moses Pelaelo said in 2021, banks were generally compliant with statutory and prudential requirements.

He said in a few cases of noncompliance, appropriate supervisory action, including remedial measures, was implemented in accordance with applicable laws and regulations. “Overall, the banking system remained safe, sound, profitable, adequately capitalised and liquid.”

Pelaelo highlighted that in accordance with Section 24 of the Banking Act, the central bank conducted prudential, consumer compliance and AML/ CFT on- site examinations in 2021. Overall, the results indicated that most supervisory concerns that were raised in the previous on- site examinations had been addressed satisfactorily. “There, however, were some areas of supervisory concern that needed remedial action and the concerned banks were directed to rectify those.”

The report indicated that with respect to the follow- up prudential onsite examination, one bank violated some sections of the Banking Act, and accordingly, the Central Bank imposed monetary fines on the bank. “With regard to AML/ CFT on- site examination, one bank was found to have weak AML/ CFT risk management systems, while one bank violated the Financial Intelligence Act, 2019 ( Cap. 08: 07). The concerned banks were required to regularise the anomalies/ deficiencies.”