Operational risks of digital money

Patrick McConnell

Chapter 4 describes how the trend towards the increasing use of digital money will impact the operational risks faced by financial institutions resulting from a much more complex and volatile business environment.

WHAT BANKS DO WITH MONEY

Banks make their profits mainly through lending or credit activities. Most provide other services, such as making local and foreign payments for customers for which they typically charge a fee, or offset against interest not paid on accounts. Some also provide other services, including providing investment advice and issuing securities, such as equities, on behalf of large companies. As regards to handling money, a key function for many banks, banking is specifically about:

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  • receiving money, such as from employers or government bodies, or from customers;

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  • storing (or custody) of money, such as safely in customers’ accounts;

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  • paying money, such as making payments for goods or services or paying salaries for firms’ employees;

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  • reporting on holdings of money, such as regular statements of account;

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  • reporting on uses of money, such as transaction statements or for accounting purposes;

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  • paying interest on money, according to complex rules on the money held