Emerging risks for Financial Institutions

Several interconnected systemic risks have been disrupting markets in recent months.
Morgan Serfiotis, Associate Partner at Avantage Reply Belgium (specialised in financial risk management consulting services for financial institutions), identifies four major emerging risks: geopolitical, climate-related, technological, and financial crime.

An unstable and uneven geopolitical environment
On the geopolitical front, “tensions have increased: the war in Ukraine, trade wars, political instability, but also a regulatory fragmentation between Europe and the United States, which can impact banks and insurance companies at both Belgian and European levels, as it is very complex to operate in such an uneven environment.”

Regarding climate risks, Morgan Serfiotis observes “increased regulatory pressure, with financial institutions being pushed to assess climate-related risks, particularly due to the uncertainty around the direction of ESG regulations as a whole, as well as the need to evaluate new financing needs linked to the climate transition and to create real impact.”

Turning risks into opportunities 

On technological risks, Serfiotis highlights “the growing sophistication and frequency of cyberattacks and the risk of fraud driven by AI. At the same time, dependence on third-party providers is also a reality, especially with the growth of cloud services, along with regulatory pressure related to technology, notably with DORA and the AI Act. Banks and insurers must invest in advanced technologies (in-house or outsourced) to detect and prevent money laundering.”

But how can institutions maintain a competitive advantage in the face of these emerging risks?
“Managers need to focus on all these emerging risks in this ‘polycrisis’ environment, using more frequent scenario analyses. This enables them to transform risks into opportunities by adopting new strategies and leveraging AI and automation to improve process efficiency. Also, by developing agile business models to respond quickly to these changes and uncertainties and make the most appropriate decisions,” concludes Morgan Serfiotis.

This article was originally published in French in Trends-tendances (Risk Management Campaign).