This week, I’ll be moderating a discussion about all things risk in 2022 (sign up here). A guide to what firms should have on their radars for the next 11 months and how their peers are addressing these risks, but what kinds of risks are we talking about here? Well, with prospect of a war in Ukraine, slow progress on global agreement on how to tackle climate risk and a rocky start to the year for the cryptocurrency markets, we really should be asking which risks shouldn’t we be worried about.
Every year, the DTCC publishes its Systemic Risk Barometer survey and every year, a different risk seems to emerge from the ether, as well as the usual suspects. The 2022 risk forecast indicates that cyber-risk is top of the pile for many firms. The regulatory agenda is peppered with discussions about operational resilience and cybersecurity has been a high-profile agenda item for every market infrastructure and financial institution out there for some time. The rise of big game hunting and the increasing sophistication of cybercriminals have led many to wonder when not if a large player will be taken offline.
An area of cyber-risk that hasn’t been so well-discussed, however, is the rise of misinformation and its impact on the markets. The dissemination of what most in the industry would call “fake news” is growing in prevalence across the globe. In fact, European regulators have data risk as a top concern for the year, stemming from its publication in the most recent ENISA Threat Landscape report. Intentional spreading of misinformation can cause significant market volatility, especially given the prevalence of algorithmic trading and sentiment analytics in the institutional space, as well as the retail trading community’s usage of and reliance on social channels. Misinformation risk is certainly something to worry about and address within the coming year.
Another tricky risk to manage is directly related to the rise of environmental, social and governance (ESG) investment. Climate risk is important to factor into firms’ models and is certainly high on the list of priorities for many firms, but equally impactful is the reputational risk posed by greenwashing. Firms need to be able to stand behind their decision-making from an ESG perspective. Knowing that you’re meeting regulatory obligations and fulfilling client expectations by using reliable data that can stand up to scrutiny from all parties is increasingly important. If your fund is labelled “ESG” it really needs to be able to substantiate that claim.
Of course, we can’t go five minutes without mentioning crypto-assets, so let’s add that to the list. The risks posed by cryptocurrencies have been discussed ad nauseum by regulators over recent months and the challenge of applying know your customer (KYC) rules in a distributed and decentralised context is something many are still grappling with. Add the sanctions component into this—step forward Russia—and you’ve got an even riskier KYC processes to manage.
And that’s just the tip of the risk iceberg. If you want to hear more about these and the other risks to expect in 2022, do sign up and listen in. Register for Data Minds: The Risk Outlook for 2022 on 3 February at 10am EST here.