Geopolitical tensions and financial crime pose the highest risks for financial services firms this year, followed by cyber, climate, and artificial intelligence threats.
That is according to the latest annual risk assessment conducted by Forvis Mazars' financial services advisory team led by Gregory Marchat.
The study indicated that geopolitical and macroeconomic risks now top all concerns for financial services due to various international factors.
Political elections in 2024 left widespread uncertainty, while social unrest locally and internationally, coupled with potential government changes, caused tensions for the public.
Meanwhile, conflicts in the Middle East could possibly bring about regional disputes, requiring companies to determine possible consequences for their operations.
Information and cybersecurity remain a critical focus, with the implementation of the Digital Operational Resilience Act (DORA) in the EU from January 2025 increasing regulatory pressure. Financial services firms, particularly those handling sensitive information, continue to be prime targets for elaborate cyber threats.
Financial crime also poses an escalating challenge, with over £3.1 trillion in illicit funds reported to pass through the global financial system in 2024. Ransomware and phishing attacks have grown more sophisticated, while traditional fraud continues to evolve alongside digital transactions.
The Economic Crime and Corporate Transparency Act 2023 introduced new compliance obligations from September 2024.
Climate and sustainability risks remain topical given the scale of extreme weather events experienced, incurring around £250 billion per annum in direct insured losses.
Regulatory frameworks are evolving as the PRA plans to revise Supervisory Statement 3/19 for Q1 2025, while Sustainability Disclosure Requirements will add greater transparency and accountability to disclosures over climate change-related financial impacts.
The report also pointed to the advancement of artificial intelligence as a significant concern. With 75% of firms using AI for various operations according to FCA and Bank of England surveys, the increasing complexity and limited explainability of AI models present new risks requiring careful management.
With the risks becoming more complex, interconnected, and rapidly evolving for financial services, the study advised firms to implement strong governance and foster a strong risk culture.
The study likewise called on firms to implement effective risk management practices into day-to-day operations.
What about you, how will you prepare for these risks? Share your thoughts below.
