Geopolitical risk on rise: DTCC survey

Geopolitical uncertainties in Asia, as well as prolonged uncertainties associated with Brexit negotiations, have positioned geopolitical risk as a top risk to watch in 2018, according to a new survey published by The Depository Trust & Clearing Corporation (DTCC).

Geopolitical risk ranks as the number two overall risk, with 69 per cent of respondents including it in their top five risks for the coming year – a 17 per cent jump since the last survey to an all-time high. Just above 20 per cent of respondents view geopolitical risk as the top overall risk – a five per cent increase from the last survey and a 10 per cent increase from the Q3 2016 survey.

More than a\one third (36 per cent) of survey respondents view cyber risk as the number one threat to the broader economy in 2018, with 78 per cent of respondents ranking it as a top five risk – a seven per cent increase from the last survey.

Michael Leibrock

“Cyber risk continues to intensify across all sectors of the financial ecosystem and it’s becoming increasingly clear that no area is immune to this threat,” stated Michael Leibrock, DTCC’s Chief Systemic Risk Officer.

“As a result, it is critical that firms prepare response plans, maintain playbooks and practice cyber-attack simulations as key components of their risk management efforts.”

Fin-tech and financial stability

Fin-tech risk, which was included in this survey for the first time, was acknowledged as a significant source of risk by 15 per cent of respondents. While fintech is generally recognized as holding great promise, these results demonstrate a growing awareness of potential emerging risks, highlighting the need to evaluate both risks and rewards associated with fintech initiatives.

Looking ahead, a majority of respondents do not believe a destabilizing event will occur in 2018.  However, they project a continued increase in spending over the next twelve months on identifying, monitoring and mitigating systemic risks, a continuation of the trend from previous surveys.

“Firms realize that managing risks and enhancing resilience requires continued vigilance, as well as additional investments,” Mr. Leibrock said. “That realization is evident by the projected uptick in spending on risk monitoring and mitigation.”

DTCC has conducted Systemic Risk Barometer Surveys across the global financial services industry on a semi-annual basis since 2013. The most recent survey was completed in Q3 2017.