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More than half of European banks foresee an increase in operational risk as the fintech revolution brings concerns about cyber-security, IT failures and outsourcing problems to the fore, according to research from the EBA.

Some 55% of banks expect operational risk to grow, up from 43% a year ago and 35% in 2015, according to the tenth EBA report on risks and vulnerabilities in the EU banking sector, which is based on information from 132 lenders from 25 countries.

Cyber risks and data security issues are seen as the main drivers for this, cited by 42% of respondents, with IT failures picked up by 16% and the growing trend to outsourcing mentioned by 11%.

All of this is driven by the increased digitalisation of banking, says the EBA, as services move online and banks become more interconnected and dependent on computer networks, creating vulnerabilities.

Outsourcing has become more popular as a way to cut costs and improve efficiency while getting access to new technologies. This means that it is critical that banks manage their relationships with third parties properly. The EBA has already consulted on recommendations on outsourcing cloud service and is preparing to update its guidelines.

Says the report: "Banks and supervisors should encourage the update of out-dated IT systems and address concerns about connectivity and outsourcing to third-party providers. In addition, supervisors should explore with banks the risks the institutions will undertake if embracing and adopting technological innovation in the financial sector."

Read the full report

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