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Definition

Reputation Risk (also Reputational Risk) is the risk of immediate financial and/or future (franchise) value loss as a result of changing perception towards the firm by its client and/or other stakeholders

Nature of the risk

Reputation Risk is part of the overall Business Risk category which captures risks that are less tangible than those risks associated firm's balance sheet

Reputation risk arises as a secondary effect from a variety of other risk realisations

  • major market, credit or insurance losses that question the firm's ability to manage risks
  • legal / compliance related fines and losses that question the firm's integrity and values
  • failed strategic initiatives (acquisitions, business strategies) that question the firm's ability to exercise its options
  • key person risk (departure of respected individuals)

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