Risk management strategies to help tackle 2025’s biggest challenges

Risk is a routine job in capital markets, and the better you manage your exposure, the harder you can work your money. But with more increasingly interconnected threats than ever to factor into your risk management framework, is your firm paying full attention?

Risk management in 2025

Within the financial framework of capital markets organizations, risk management covers a wide range of topics but presents three main challenges.

First, you need to manage financial risks to your balance sheet and your cash flows. Second, you must determine your exposure to different external risk factors, from climate change and geopolitical events to changing FX and interest rates. Third, you should look inward to how you manage your operations and their exposure to cyberrisk, trading risk and other types of operational risks.

In 2025, firms are likely to be closely monitoring their exposure to interest rate movements and making sure they prepare for the effect on their debt. But exposure to the volatile geopolitical environment will also be top of mind, as will the risks of climate change for business operations, employees, buildings and supply chains.

Risk management itself hardly changes as a discipline from year to year. What does change constantly is the world at large, the conditions in which risk managers operate and help put money to work.

The regulatory factor

Regulation, meanwhile, keeps risk management in check. Expect no radical changes in 2025 but do prepare for an ever-increasing focus on the specifics of regulatory requirements: the nuts and bolts of managing market, liquidity and credit risks to your organization.

In Europe especially, the Basel Committee on Banking Supervision (BCBS) continues to articulate new ways to think about and manage risk, through its evolving recommendations for both managing interest rate risk in the banking book (IRRBB) and running the Internal Capital Adequacy Assessment Process (ICAAP).

With Germany leading the way, we’ll see ICAAP roll out across the globe in the next few years. It will be interesting to observe how other markets, particularly in Asia Pacific, implement the capital requirements for risk-weighted assets.

However, as the home of the BCBS, Europe is arguably the region where approaches to risk management are best articulated, underpinned as they are by rigorous regulatory guidelines and well-established conceptual frameworks for managing market, liquidity and credit risks.

It’s no surprise that, according to the 2024 FIS Global Innovation Research, 95% of organizational leaders in the U.K. – as well as in Singapore and Hong Kong, which are also heavily regulated – show high levels of confidence in managing business risks, compared to just 90% and 87% in the U.S. and Australia, respectively.¹

To unlock that kind of confidence, it is important to underpin your risk management framework with strong, secure, highly automated and seamlessly connected technology powered from the cloud, which may help you transform high volumes of transactional and market data into insight and get the complete, accurate and forward-looking view of risk you need across your enterprise to manage and mitigate your exposure.

Transparency is critical to risk management and has the highest impact on risk factors for 38% of financial services firms – more than compliance or even security. ¹ However, without technology behind you, transparency can also be hard to deliver.

Growing risks from climate change

No risk management framework is complete without addressing the impacts of one ever-increasing risk factor: climate change.

Climate change creates two forms of risk for businesses: the physical risks that extreme weather holds for property, assets and supply chains; and the transition risks of moving from a carbon-intensive to a net-zero economy. Both require you to analyze additional data and model the impact of multiple scenarios on your firm.

In terms of physical risk, extreme weather events – like hurricanes, flooding and wildfires – can result in major financial losses. As the probability of these events increases, powerful climate risk financial modeling tools could potentially process terabytes of global climate data to predict how likely extreme weather is to affect your business and how much it will cost to insure, repair or replace damaged assets.

Transition risk is more nuanced and brings opportunities, as well as challenges. For example, as the automotive industry shifts from internal combustion engines to electric vehicles, an auto finance provider could move from leasing just cars to financing batteries, charging equipment and associated services.

From a risk management standpoint, firms must know the costs of making – or not making – that move. It’s then critical to factor the transition risks into not only your own financial plans, but also your credit agreements with counterparties.

By helping accelerate the journey to net zero, regulation is a major driver of transition risk, as are geopolitical factors. As Europe continues to move forward steadily on the carbon-neutral agenda, some believe the U.S. might hit the brakes.

What is key for risk managers is to gather more data on how the market is moving, the regulatory environment is shifting and the climate is continuing to change. In turn, you should bring that data into your risk framework and use it for the day-to-day work of market, liquidity and credit risk management.

Again, cloud-based risk management software may be key to making that happen and streamlining the complex risk modeling and data management processes that may help you monitor, measure, predict and mitigate your risks. More than just compliance, it’s about protecting your business and helping your finances work harder.

Modern risks from digital technology and AI

Just as the physical world keeps changing, the digital world continues to advance.

Digital technology is essential for increasing efficiency and driving innovation, but it also introduces fresh operational risks.

For robust cybersecurity and confident business continuity plans, you must know your hyperconnected – often third-party, managed digital operations – are resilient and that one glitch won’t set off a chain of issues. Now, regulators want to know it, too.

Again, Europe has taken the lead with the introduction of the Digital Operational Resilience Act (DORA), the gold standard for managing digital operational risks. As with most financial and climate-related regulations, DORA asks you to not just understand the risks, but also put in place mechanisms to respond to them.

Qualitatively speaking, the difference with digital operational risk management is that you must monitor your risks in real time and ensure you’re instantly alerted to any issues.

You also need to keep track of the technology itself, especially when it comes to the use of artificial intelligence (AI).

AI tools can bring huge benefits to risk management and could make risk operations more efficient. AI’s ability to analyze vast amounts of data in real time, distill insight and determine patterns is beyond what human individuals can achieve, whether you use it to compare your firm’s liquidity coverage ratio against industry benchmarks; identify money laundering and cybercrime; or improve the accuracy, efficiency and adaptability of pricing models for trading.

However, AI brings big risks of its own. As large language models advance, there are endlessly evolving ways that bad actors can take advantage of and manipulate generative AI. Just as it has done with more mature machine learning models, the industry must develop rigorous model risk management capabilities for generative AI.

Why it pays to invest in risk management without delay

Being rigorous about risk management can be beneficial for business, protecting your operations and helping money work harder to drive growth. The conceptual frameworks are already available and so is the sophisticated, powerful technology that provides visibility and insight into the risks your business faces. It is important to embed these tools deep into your company culture, collect all the right data and stay alert to every risk and opportunity that could arise for your firm from within or beyond.

You should also consider being more proactive when investing in risk management. Too often, companies wait until it’s too late, as we’ve seen in the case of disastrous cyberattacks. Whether its cause is expense management, lack of leadership or other distractions, procrastination means facing a more difficult road as events unfold in 2025.

The business leaders that have already invested in the right technology platforms, processes and people to manage their risks can face the year with more confidence. As risk management pioneers, they have paved the way for being highly risk-rated and investible companies in capital markets.

What are you waiting for?

¹FIS, Global Innovation Research 2024 surveyed 2,000 firms across financial services and other industries in the U.S, U.K., Singapore, Hong Kong and Australia.