The risk that arises from failure or inability to operate in accordance with the norms and standards of fiduciary responsibilities. An example is the case of mismanagement of investor’s funds which results in breach of contractual terms and conditions. This risk reflects liability for losses associated with fiduciary responsibilities and may result in insolvency or inability to protect the interests of investment account holders (IAHs) and/or to meet withdrawal requests by current account holders.

Fiduciary risk is part of operational risk of an Islamic bank (Islamic financial institution– IFI).