Journal of Operational Risk

Legal risk management in the Polish banking sector

Agnieszka Modras

  • We propose to define legal risk as the risk of loss resulting from incurring or enforcing a legal liability, related to the business of the enterprise, and having its source in law, other regulations, relations with third parties or other events, resulting in such liability.
  • Based on study results, we show that legal risk management in Polish commercial banking is being carried out at a satisfactory level, as no significant anomalies, pathological phenomena, or regulatory non-compliance were detected, but activities in this area are still largely guided by intuition and with limited use of tools developed for operational risk management.
  • We suggest means to change this approach and start developing more advanced techniques of legal risk management. initiatives related to each phase of the legal risk management process are formulated.

This paper reviews how Polish banks manage legal risk; that is, what is required from banks to satisfy applicable regulations and management theories and how this process works in practice. Since the global financial crisis of 2007–9, legal risk has become increasingly important for the banking sector. In Poland, the growth in importance is predominantly associated with the so-called regulatory tsunami, which has seen a constantly changing legal framework for bank operations, as well as with a significant number of customer claims that challenge the validity of foreign-currency- based mortgage loans. Legal risk management has not been extensively covered by academic research, and thus this study makes a valuable contribution to the field, shedding new light on this topic and providing insights that can inform future research and policy decisions.

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