CONNECT MAGAZINE - ISSUE 6

EDITION 6

Governance Crypto Talent

Redefining risk: why world events demand we think differently

Climate Risk Third Party Risk

The Effect of Crypto on FinCrime Risk: Freddie New argues that traditional currencies may be the new enemy of AML risk

Why Collaboration Drives Profit:

Deb Barnes makes the case for teamwork making the dream work

Why People Matter:

In a new world order where AI rules, Mauricio Masondo explores the role of the human in risk governance

Science v Economics:

Tony Hughes on how scientists and economists need to be more aligned to meet the climate challenge connect.cefpro.com/magazines www.cefpro.com/magazine

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CONTENTS

The views and opinions expressed in this publication are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

This month’s new features in Connect Magazine

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ONSTAGE: KEY VOICES TO WATCH Each month we introduce you to some of the keynote speakers who’ll be sharing their expertise and insight with you during our 2025 event programme

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SPOTLIGHT ON RISK CAREERS Chandrakant Maheshwari launches our new regular monthly series that will feature insight, expertise and knowledge from leading professionals on the best route to career success

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FOREWORD Rolling Back the Years: What the Return of Trump Means for Sustainable Finance Risk

A month after the return of our flagship Sustainable Finance event for 2025, CeFPro Managing Director Andreas Simou assesses the impact of the ‘Trump effect’ on ESG risk

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INDUSTRY IN FOCUS - 15 PROBLEMS TO GET TO GRIPS WITH IN 2025 Our new monthly feature presents a visual at-a-glance view of current trends in risk management within financial services. This month we look at what might be keeping you awake at night for the rest of the year

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NEWS IN REVIEW Our 3-minute read catches you up with some of the news stories and events that have been on the risk news agenda around the world over the last month 2

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BITCOIN: A LESS RISKY AML ALTERNATIVE TO TRADITIONAL FINANCE ?

Freddie New asks whether everything we thought we knew about cryptocurrency in general – and Bitcoin in particular – is based on old news

Freddie New, Head of Policy, Bitcoin Policy UK

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Emma Hagan is the UK CEO at ClearBank. She was previously Chief Risk Officer with the bank, and has previously held senior posts at Silicon Valley Bank, Lloyds Banking Group and HBOS

Tony Hughes is a risk modelling expert and a regular columnist with GARP

EMBRACING INNOVATION & TALENT IN A DYNAMIC RISK LANDSCAPE Emma Hagan makes the case for an innovative and dynamic approach to risk talent acquisition and retention in a fast moving and changing corporate and regulatory environment.

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SURVIVING THE SECOND INDUSTRIAL REVOLUTION: HOW AI WILL DRIVE ESG GOVERNANCE AI has often been cited as the catalyst for the modern industrial revolution. We explore how it will drive risk governance decisions and why we’ll survive the latest reinvention of how we work Insight from Mauricio Masondo, Head of ESG credit management, Citi

EXPLORING THE GULF BETWEEN ECONOMISTS AND CLIMATE SCIENTISTS Why differing views of economists and climate scientists on the economic impact of extreme climate change risk reducing the debate to one that is purely academic

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TEAMWORK MAKES THE DREAM WORK: REDEFINING THE ROLE OF RISK IN MODERN ORGANIZATIONS Ahead of her session at Risk Evolve, Deb Barnes explains how evolving risk functions are transforming from compliance enforcers into collaborative, agile partners in innovation.

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TERMINAL RISK: HEATHROW FIRE SPARKS THIRD-PARTY SCRUTINY Mark Norman asks whether the suspension of services caused by last week’s fire at Heathrow is a final call for businesses to double down on third party risk.

Mark Norman is Head of Content at CeFPro

Deb Barnes is the Chief Risk Officer at OMERS

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Rolling Back the Years: What the Return of Trump Means for Sustainable Finance Andreas Simou, Managing Director, CeFPro Since we were last here we have had the welcome – and successful – return of our flagship Sustainable Finance Europe conference in London.

It was a fascinating event as much for its coffee machine conversations as for the critical insight its sessions afforded delegates, given it coincided with the return of a familiar face to 1600 Pennsylvania Avenue.

In ESG terms, the return of Trump inevitably feels very much like a case of ‘the new President, much like the old President’, and those whose work is immersed in sustainability are already scrambling to get ahead of the regulatory game.

Already, long-held assumptions about ESG integration, climate risk disclosure, and the role of government in sustainable finance are being challenged.

For us, this means a recalibration of risk frameworks, as firms weigh how to balance regulatory rollbacks with investor and stakeholder expectations that, in many cases, remain unchanged.

Sustainable finance remains a dominant market force while investor demand for ESG-linked products continues to grow, prompting financial institutions to adopt voluntary standards around climate and social risks.

Most financial institutions recognize that sustainability risks remain business risks.

The question now is how to adapt to a policy environment that deprioritizes sustainability while market realities continue to reinforce its importance.

In this edition of Connect Magazine, you can find out more about how ESG risk governance might change in the current political climate and how a gulf between science and econometrics breeds ESG inertia. You’ll also get insights into cryptocurrency risk, talent management strategy, and how the risk function should now be seen as a profit, rather than cost, center.

To advertise in the magazine, contribute an article, or become a guest editor, please contact our magazine editorial, marketing and sales teams. Their contact details are opposite.

The mission to standardize ESG disclosures and embed climate risk into financial regulation has been mothballed. Already, there are moves to roll back mandatory climate-related reporting requirements, accelerate deregulation and market-driven decision-making, and deprioritize ESG mandates.

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Bitcoin:

A Less Risky AML Alternative to Traditional Finance ?

Freddie New is a General Counsel and the Head of Policy at Bitcoin Policy UK and the Co-Founder of ICDEF – a politically independent cryptocurrency research platform.

He has held a number of senior posts as lead or General Counsel in commerce and industry in the UK.

Ask most people about Bitcoin, and you will get a few predictable responses, usually derived from a half-remembered 2013 newspaper article. One of the most common is that it’s simply a “tool for criminals”.

But even if this was true more than a decade ago, is it still the case, given both the nature of the Bitcoin network and all the developments in the space since then?

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Freddie New General Counsel and the Head of Policy Bitcoin Policy UK, co-founder ICDEF

Bitcoin is many things, but one of its most fundamental characteristics is its transparency. Most simply, you can think of Bitcoin as a public ledger of transactions with an inbuilt messaging system to update everyone who can make changes to that ledger whenever value moves from one party to another.

Unlike the movement of funds through traditional bank accounts, every single one of these transactions is absolutely transparent and can be

viewed by any member of the public using a computer or a mobile phone.

Many such ‘block explorers’ exist1 and they are increasingly used both by law enforcement and by companies such as Chainalysis2 to monitor and trace the movement of Bitcoin on the distributed ledger.

This radical transparency actually makes Bitcoin a uniquely unsuitable medium for criminal activity of any kind.

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Examples of this unsuitability abound, but perhaps the most famous is the work done by the FBI in successfully tracing the Bitcoin stolen from an exchange known as Bitfinex, and the subsequent identification and arrest of the perpetrators3.

It is worth reading the FBI’s evidence in full, as this provides a fascinating insight into the way in which law

What is even more important to understand is that while such radical transparency is a huge benefit for law enforcement, it doesn’t stop there.

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enforcement is easily able to trace movements from wallet to wallet, and ultimately to the point where the Bitcoin addresses may be linked to an identifiable individual. This is not the place to set out a full description of the FBI’s work, but the image below is a powerful illustration of just how hard it is to hide when using a transparent distributed ledger:

The Bitcoin ledger is, quite literally, immutable once a record has been created in it.

Again, this is not the place to provide an in-depth explanation of the Bitcoin mining process, but in summary in order to add a new transaction to the ledger, specialized and costly computers – known colloquially as ‘miners’ – are required to expend a massive amount of energy in competing to guess a randomly generated number.

There are no shortcuts to this process, and it cannot be forged or faked - it is the process that makes Bitcoin arguably the most secure ledger the world has ever seen.

Once a transaction has been written on the blockchain, it cannot realistically be changed – it remains there, public and completely immutable, and viewable by anyone with a smartphone.

More importantly, these immutable and public records are admissible in court, and once made cannot be changed or obfuscated by bad actors.

The final piece of the puzzle is understanding the relationship between Bitcoin addresses or wallets and people in the real world, whether legal or natural.

Bitcoin on the ledger is transferred between ‘addresses’, which are alphanumeric strings. As a system, it is therefore ‘pseudonymous’

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rather than anonymous, and typically, Bitcoin is bought and sold on exchanges, which are increasingly being brought within the ambit of global regulatory bodies.

As part of this process, these exchanges perform market-standard and bank-like KYC on their customers, and are subject to the Financial Action Task Force’s Travel Rule.

The moment at which an identifiable person is linked to a Bitcoin address is that final piece of the puzzle. At that moment, every single transaction ever made by that person is revealed - not merely the final step where Bitcoin was transferred to the exchange, but the one before that and before that.

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In short, the transparency and immutability of the Bitcoin ledger are a boon to law enforcement.

Not only this, but because this transparency is widely known, it has become reasonably obvious to the majority of bad actors who want to transact in private that Bitcoin is a uniquely bad way of doing it.

They can’t hide their tracks, and they can’t expunge transaction records, ever.

It’s not even a case of waiting a number of years for bank statements and records to become lost or obsolete; the Bitcoin ledger will remain available for review, without any limitation in time, potentially for as long as the internet exists.

So, far from Bitcoin being a tool for criminals, the data now shows that criminals are actively choosing not to use Bitcoin at all - likely because it serves their purpose so badly.

The latest data from Chainalysis shows that across the whole cryptocurrency market, the total likely volume of illicit transactions in 2024 was a mere 0.14% of all transactions made.

Like Yevgeny Prigozhin4, it appears that the vast majority of criminals actually prefer to use the traditional financial system for their illicit activity.

So what are the implications here for risk and compliance teams, and for fintech and traditional finance firms looking to adopt best practice in this area?

In many cases, if a firm is seeking to extend the services they offer to include Bitcoin exposure or Bitcoinadjacent services, best practice

would begin with a scoping exercise to understand the genuine properties of Bitcoin, of the transparent and distributed ledger, and a thorough risk assessment based on factual reality, and not newspaper articles from more than a decade ago.

In the practical implementation of any form of Bitcoin services, the best place to start is essentially in a thorough application of existing KYC and AML practices, together with similar professional advice, but in the knowledge that, unlike the traditional financial system, Bitcoin has many properties of transparency and immutability that make it uniquely poorly suited to criminal activity, rather than the reverse.

It is a slight irony that, over time, it may become clear that firms have a greater risk of exposure to bad actors when dealing with the familiar banking system than they do when dealing with Bitcoin transactions.

1 Blockchain Explorer 2 Chainalysis 3 Two Arrested for Alleged Conspiracy to Laun-

der $4.5 Billion in Stolen Cryptocurrency | United States Department of Justice 4 Yevgeny Prigozhin secretly used JPMorgan and

HSBC for Wagner payments

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Celebrating Women’s History Month Each month in Connect Magazine, we’re going to be spotlighting five influential figures who are set to take the stage at CeFPro’s upcoming events and whose insights are shaping the future of financial services.

As March marks Women’s History Month, we’re taking this opportunity to shine a light on the exceptional female leaders who are making an impact in the industry. These leaders will be sharing their insights on key challenges and opportunities shaping the financial landscape - don’t miss the chance to hear from them at our upcoming events!

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AI in Insurance Europe

Chiara Ziliani Head of Group Audit Analytics Assicurazioni Generali

Skilled mathematician and life insurance professional, with 15 years of experience as a manager in finance and actuarial areas (more than 10 years in Axa Group). In 2016 I decided to leverage my skills and knowledge joining Generali Group Audit function, and I am now a globally experienced senior audit and risk professional, having earned my CIA certification. Passionate about data analytics and digital technologies, I have led the implementation of Generali Group Audit Analytics program. At the beginning of 2024, we have started to harness the transformative power of generative AI to further enhance our Internal Audit processes.

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Sophie Dupre Echeverria Chief Risk & Compliance Officer Gulf International Bank

Birgit Biondi Head of Global Third Party Management Function Munich Re

Vendor & Third Party Risk Europe Birgit Biondi is a seasoned professional with a 21-year tenure at Munich Re, one of the world’s leading reinsurance companies. A qualified lawyer, Birgit Biondi has spent 17 years in the reinsurance core business, specializing in underwriting with a focus on liability.

During this time, she developed a deep understanding of the industry and built a strong reputation as a subject matter expert.

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Risk Evolve Sophie is the Chief Risk and Compliance Officer of Gulf International Bank (UK) Limited.

She is responsible for driving an effective risk culture throughout the company, designing the risk and compliance frameworks and overseeing risk management and regulatory compliance practices.

Sophie joined GIB UK with extensive experience in the field, having previously served as Executive Director for Compliance and Operational Risk Control at UBS Asset Management. Before this, she was Global Head of Operational Risk at Barings, and non-Executive Director of the Baring-Coller Secondaries Fund. Sophie was also an Operational Risk Manager and the Group Head of Investment Risk Framework at Schroders.

Ionela Emmett Senior Manager, Financial Crime Controls, Risks and Policy & Advisory ICBC Standard Bank

Anne McGowan, Head of Supplier Management, Governance & Risk Lloyds Banking Group

Vendor & Third Party Risk Europe Anne is Head of IT Supplier Management , Governance and Risk at Lloyds Banking Group (LBG), leading a large team of 37 professional Supplier Managers who manage 330 of the most important technology suppliers. This reliance on technology suppliers, in support of the delivery of LBGs Technology Strategy, has grown exponentially with the trajectory continuing.

Recognising that we can’t stand still in the face of environmental disruption in the supply chain eg geopolitical tensions, soaring inflation and potential supplier financial instability, climate concerns and increasing dependency on technology suppliers, Anne has led a significant project to transform Supplier Management.

Risk Evolve Ela Emmett has recently been appointed as a Senior Manager Financial Crime Controls Risks and Policy & Advisory within the Compliance function at ICBC Standard Bank. In her previous role with Commerzbank AG London she led the AML Monitoring and Investigation team and acted as Fraud Officer for the London Branch leading the Anti-Fraud Programme and ensuring oversight and implementation of the respective local and global governance. She was responsible for managing complex investigations across different business platforms and critical input in developing antifinancial crime policies procedures measures and controls.

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Embracing Innovation & Talent in a Dynamic Risk Landscape

Emma Hagan, UK CEO at ClearBank, sits at the intersection of banking innovation and risk management evolution.

As a cloud-native, API-driven clearing bank providing payments and accounts to financial institutions across the UK and the EU, ClearBank’s approach to risk management and talent development is as agile as it is forward-thinking.

With more than 20 years of experience in the financial services sector – from Silicon Valley Bank to Lloyds Banking Group and HBOS – Hagan has seen firsthand the transformation of the industry.

Now, having joined ClearBank almost five years ago as Chief Risk Officer before transitioning to the CEO role last year, she is spearheading an organizational culture that prizes both innovation and adaptability.

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Emma Hagan is the UK CEO at ClearBank. She was previously Chief Risk Officer with the bank, and has previously held senior posts at Silicon Valley Bank, Lloyds Banking Group and HBOS

Why Diversity of Experience is Key When asked how ClearBank is adapting its talent development strategies to ensure that the next generation of risk managers is prepared for an increasingly complex, technology-driven landscape, Hagan emphasizes the importance of diversity in experience.

organization, how do we blend that with fintech and also sometimes non-FS people.

Because, they all come with slightly different perspectives, different skills, different experiences, different knowledge – and people learn a lot from each other along the way.”

“I think one of the things that we’ve looked at quite a lot is where we source candidates from and particularly looking at how do we get a real blend of skills and experience in different backgrounds,” she explains.

Hagan’s strategy revolves around identifying and nurturing both technical and non-technical skills.

As the risk landscape becomes increasingly intertwined with emerging technologies like AI, ClearBank is not just focusing on hard skills but also on the ability to

“So rather than perhaps source primarily from, say, a large incumbent

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communicate complex ideas in simple terms.

Internal programs at ClearBank also aim to identify skills gaps and develop the necessary competencies.

Hagan highlights that part of their internal focus is on training in resilience, growth mindset, and embracing change. This approach is complemented by external partnerships to ensure that the team stays ahead of the curve.

“Some of that internally is focused on where those gaps are, if you like, and how much we can help through a centrally driven program,” she explains, adding that the bank also allocates budget for external specialist training to further their skills based on where the company is growing.

The evolving role of risk managers, Hagan points out, requires more than simply applying established procedures.

In today’s fast-paced environment, adaptability and problem-solving are critical.

Breaking the Silo Mentality Hagan’s risk teams are expected to work collaboratively, breaking down silos and communicating effectively across the organization to achieve business outcomes.

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“The people who are most successful, I think, are the people who are really working to collaborate with others across the organization in achieving those business outcomes and figuring things out together along the way rather than operating in very siloed ways of working,” she explains.

Innovation she says, is not only about technology but also about cultivating a culture where “new is what we do.” This mindset extends to the integration of AI into the risk management function, she says, describing how the bank leverages technology to streamline processes and provide real-time data for decision-making.

One practical example of this integration is automated monitoring over technology. Hagan explains that automated systems allow risk professionals to see data and alerts in real time, rather than relying on slower, traditional communication methods.

This proactive approach not only enhances operational efficiency but also frees up risk managers to focus on strategic, high-value analysis rather than manual data collection and processing.

diverse talent pools, ClearBank ensures that its workforce embodies a blend of skills and perspectives that foster innovation. The bank’s culture, marked by flexibility and trust, resonates with professionals who thrive in dynamic environments.

Ultimately, ClearBank’s forwardthinking approach under Emma Hagan’s leadership is a testament to how modern risk management is evolving.

It is a blend of technology, human expertise, and an adaptive organizational culture – a combination that prepares the bank for the challenges of today and the uncertainties of tomorrow.

As Hagan puts it: “If you want to work on things that no one else has done before, that no one’s ever worked out how to do, if you want to get that exposure, if you want to try and figure that stuff out with us, and have that freedom and the autonomy and the empowerment to go work on some really hard stuff, then this is the place to be.”

Agility and the Need for Dynamic Planning For Hagan, agility is the key to staying ahead in an environment where change happens rapidly.

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Chandrakant is First Vice President, Lead Model Validator at Flagstar Bank, New York. He has more than 15 years’ experience in Financial Risk Management (Market and Credit Risk) and has previously worked with business consulting firm Genpact. He is a regular monthly columnist with Connect Magazine.

NAVIGATING CAREER TRANSITIONS IN AN ERA OF RAPID TECHNOLOGICAL CHANGE

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The pace of technological change today is so profound that no one will remain unaffected. Every professional, regardless of industry or experience level, will need to confront tough questions about their future.

The probability of two chess games playing out identically is close to zero, even though chess follows strict rules—only two players, alternating turns, with 32 pieces on a 64-square board.

For many, this will mean planning a career shift—an often-daunting process that requires stepping out of familiar roles and into new, sometimes unfamiliar, domains.

Now, consider the complexity of human careers, where every individual has a distinct upbringing, varying opportunities, and different life circumstances.

This challenge is particularly pronounced for mid- and seniorcareer professionals. By this stage, every individual has walked a career path uniquely shaped by personal experiences, industry shifts, and individual choices.

The chances of two professionals having identical career journeys are even slimmer. In this increasingly specialized world, where career options continue to multiply, professionals often find themselves navigating these transitions alone.

THE POWER OF KNOWLEDGE SHARING At Connect Magazine, we recognize that career transitions can be challenging, but they don’t have to be solitary journeys. The importance of knowledge sharing has never been greater.

To address this growing need, we are launching a regular insight feature looking at the careers of some of the most successful people in our industry, and sharing tips, hints and knowledge to fire your career.

Our monthly interviews with professionals from diverse industries will look at how they navigated their own career paths, the strategies and behaviors that have helped to ignite their own career trajectories, and key takeaways that others can use to build their own profile and CVs. This series will focus on real-world insights, actionable strategies, and lessons from professionals who have successfully transitioned into new roles or industries. We will explore: •

How they got into their current field – The motivations, opportunities, and decisions that shaped their journey.

•

Challenges faced and how they overcame them – Including skills gaps, mindset shifts, and overcoming uncertainty.

•

Strategies for career pivots – Practical guidance for professionals, especially those in mid-to-senior career stages, on how to make informed career transitions.

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Advice for others – Key takeaways that can help readers make strategic career decisions.

By providing a platform for professionals to share their experiences, we aim to equip our readers with knowledge, inspiration, and concrete strategies for navigating career change. Whether you’re considering a shift due to industry evolution, personal aspirations, or new opportunities, this series will serve as a roadmap to help you make informed, confident decisions about your future.

Stay tuned for insightful conversations that illuminate the many pathways to professional success.

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Exploring the Gulf Between Economists and Climate Scientists

If global warming is not controlled, predictions of economic damage vary wildly. Does this matter?

Tony Hughes is an econometrician and expert risk modeller with more than 15 years’ experience building high calibre credit risk modeling teams, mainly covering retail and commercial loans. He has built models for PPNR, deposits and structured securities and has experience and expertise covering the entire banking landscape.

Tony is a regular columnist with GARP.

In the climate risk community, one of the hottest debates - if you pardon the pun - concerns the economic impact of extreme scenarios. As a prediction exercise, temperatures are assumed to rise without limit causing tipping points to be traversed, some of which reverberate in the form of accelerated warming.

It is generally accepted that this sequence of events would cause 26

dramatic changes to the world around us. The debate centers on how the human economy would perform given these circumstances.

Using broad strokes, climate scientists focus on changes in the physical conditions faced by the populace and conclude that economic losses will be massive, perhaps total.

Economists, meanwhile, point to the remarkable ability of humans to adapt to their environment, leading to the conclusion that, if populations survive, economic damage will be more modest.

Ultimately, the winner of the debate will be determined by the data.

Hopefully temperatures will instead be stabilized and we’ll never find out which side was in the right.

The debate is between two alternative theoretical viewpoints - passionately held - neither of which can currently be invalidated. The models used by

both sides suggest that damage from climate change should be mild with around 1.5C of warming, which is the current level. In other words, neither sides’ predictions have, to date, gone seriously awry.

If temperatures keep climbing, the projections diverge sharply. Small changes in the assumed functional form defining the curvature of the damage function lead to gaping prediction differences when extreme scenarios are considered.

There is every chance that the truth lies somewhere in the middle of the two major camps. Or perhaps everyone is wrong and extreme climate change will ultimately unlock unimagined economic riches. If you can find someone willing to defend this position, they couldn’t be proved to be wrong.

Beyond its rhetorical value, the debate seems rather pointless. The pessimistic view demands urgent action from government officials and corporations, but it may also breed panic and despair from the general public. If our grandchildren are doomed, after all, there’s no point in the current generation living like stylites.

continuity of the human species.

This means that policy discussions about adaptation measures, taxes levied on winners, compensation for victims and the possible distribution of economic damage can develop.

If you try to discuss things like adaptation with someone in the climate scientists’ camp, you tend to hit something of a brick wall.

So in a sense it doesn’t really matter who’s right, except as an academic exercise. If it gets hot and it’s the climate scientists, we’re screwed. If the economists are right, life will go on. If extreme temperatures trigger an economic bonanza, remember you read it here first.

And finally, no matter who’s right, spare a thought for everything that has and will be lost as a result of climate change. Polar bears and coral reefs don’t count for much in global GDP but we will no doubt deeply lament their extinction, should they ever occur.

The economists’ view - that we will experience some economic damage but be broadly OK - may be more or less effective at prompting a change in public sentiment. Ultimately it’s the voting public who will dictate the urgency of political action.

One advantage of the economists’ position is that it assumes the 27

An Academic Exercise If you haven’t guessed already, I am an economist and I tend to be pretty optimistic about the ability of humans to adapt to their environment. The climate scientists, meanwhile, focus on tipping points, concluding that economic harm will ratchet higher as each one is grimly checked off.

But necessity is the mother of invention.

If - or when - future conditions start to threaten corporate profits and individual incomes, you can bet your bottom dollar that people will be incentivized to find a workaround, whether or not they succeed remains an open question. It’s possible to concede that physical conditions will deteriorate in a highly nonlinear way as temperatures rise and still believe that the economy will remain stable.

Human ingenuity just has to match the rate of change dictated by the physical environment.

This train of thought highlights what I view as a weakness in the economic reasoning of the climate scientists.

We are not asking whether the 2025 economy could survive 3C without disruption. Such temperatures - should they ever occur - will affect the world that exists whenever that infamous milestone is surpassed, perhaps in around 2100.

The economy then will be very different - just think about how your life differs from that of your grandparents. People may live and work in completely different places - there may be megacities built in regions that are currently frozen wastelands. The 2100 28

economy may be much more northern and less tropical than it is today.

Think of this in a different context suppose scientists discover a planet with earth-like features, an atmosphere with a similar mix of oxygen and nitrogen, a similar system of continents, oceans and seasons. It is found to be teeming with recognizable plants and animals.

The only problem is that it is 6C hotter than pre-industrial earth, with all the concomitant climatic consequences that that entails.

Would a climate scientist bemoan the discovery of yet another uninhabitable exoplanet? I don’t think they would.

If pioneer human colonists were sent to the planet, they would build their farms and cities in the most suitable temperate regions and avoid locations with excessive heat stress, fire and flood. They would stay indoors if necessary. They might even be migratory, moving between different locations as conditions dictate.

The point is that such a planet would support the establishment of an economy - how much it could ultimately grow is anyone’s guess.

Apart from the initial condition, there is no difference between this new planet and a climate changed earth.

Climate Risk is Financial Risk. Are You Prepared?

Climate risk is reshaping financial markets.

This October in Amsterdam, join industry leaders tackling regulatory shifts, financial impacts, and the path to resilience.

Insightful, engaging, and inspiring – an essential event for [risk] leaders.

The audience was continuously engaged…

I particularly enjoyed the many informative conversations I had.

Climate Risk Week is coming.

Register your interest today >

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Challenges Facing Financial Institutions Between now and the End of the Year

1. Cybersecurity Threats A survey revealed that 80% of bank cybersecurity executives feel unable to keep pace with AI-powered cybercriminals.

2. Geopolitical Risks 71% of financial firms identified geopolitical tensions as one of the most challenging risks to manage.

3. Economic Downturn Concerns 22% of respondents highlighted risks associated with a global economic downturn as particularly challenging.

4. Climate-Related Events Natural disasters cause approximately $250 billion in damages annually, with insured losses consistently exceeding $100 billion.

5. Third-Party Vendor Risks Over 70% of data breaches in banks originate from vulnerabilities in the supply chain.

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6. Fraudulent Activities 44% of Chief Risk Officers consider fraud a significant non-financial risk, with 62% of financial institutions reporting an increase in social engineering incidents.

7. IT System Failures 11% of firms cite IT risks as among the most challenging to manage, reflecting concerns over system outages and technological failures.

8. Regulatory Compliance Financial institutions are under increasing pressure to comply with evolving regulations, such as the UK’s Sustainability Disclosure Requirements, impacting operational processes.

9. Reputational Damage Incidents of non-financial misconduct, including bullying and harassment, have risen, with reports increasing from 1,363 in 2021 to 2,347 in 2023.

10. Environmental Sustainability Banks are facing pressure to align with climate goals, with discussions at COP29 highlighting the need for annual investments of $1.6 to $3.8 trillion until 2050 to meet Paris Agreement objectives.

11. Technological Advancements 42% of bankers expect cybersecurity risks to pose significant challenges in implementing new technologies over the next five year.

12. Supply Chain Disruptions Natural disasters and geopolitical events have led to increased supply chain vulnerabilities, affecting financial institutions’ operational resilience.

13. Data Privacy Concerns With the rise in cyber threats, protecting customer data has become a critical focus, with significant investments in cybersecurity measures.

14. Market Volatility Global economic uncertainties have led to increased market volatility, posing challenges for risk management strategies.

15. Talent Retention The financial sector faces challenges in attracting and retaining talent, particularly in specialized areas like cybersecurity and compliance.

Sources:

Business Insider | Bank of England | Forvis Mazars | N Contracts | Financial News London | Retail Banker International | Allianz | Leasing Life | Allianz Trade | RSM | Fintech Insights | PwC

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Surviving the Second Industrial Revolution: How AI Will Drive ESG Governance

Mauricio has been with Citi for more than 30 years, working across five countries in Asia, Latin America, North America, and Europe. His expertise primarily lies in credit and for the past five years, he’s led a transformation program within Citi’s centralized credit function. He currently heads ESG credit management, overseeing all ESG-related matters for the credit process.

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Artificial intelligence is transforming financial risk assessment, and within ESG (Environmental, Social, and Governance) credit risk, AI-driven early warning indicators (EWI) are changing risk governance frameworks. Yet, despite AI’s power to process vast datasets, Mauricio Masondo, head of Citi’s ESG function, argues that AI will continue to rely on human expertise.

“AI will complement rather than replace human expertise,” says Masondo.

“Just as we adapted to Excel, AutoCAD, and PowerPoint, we’ll successfully integrate AI into our workflows.” Masondo’s perspective underlines the consensus that AI enhances efficiency without eliminating professional judgment.

The foundation of an effective early warning system lies in three key components, he says. First, data generates signals. Second, AI models process this data into insights. Third, human analysts interpret these outputs into actionable recommendations. Without the final step, AIdriven EWI will generate nothing more than reports.

“While generative AI processes and structures information efficiently, human expertise remains vital,” Masondo explains. “Credit monitoring specialists identify effective predictive metrics and translate model outputs into actionable intelligence.”

The Challenge of ESG Data Quality One of the biggest obstacles to AIpowered ESG credit risk assessment is data quality. Unlike financial data, ESG-related information is often inconsistent, incomplete, or subject to evolving regulations.

data on factories and distribution centers, but its quality varies depending on corporate disclosure practices. Large corporations may provide detailed reports, while smaller suppliers often do not disclose locations.

“We’re operating in an evolving landscape where even our clients are still determining their monitoring and reporting requirements,” Masondo acknowledges. “Regulators are also in a learning phase.”

New regulatory frameworks, such as the Corporate Sustainability Reporting Directive (CSRD), are expected to enhance ESG data availability. In the meantime, financial institutions are addressing challenges by understanding data limitations, developing methodologies to address gaps, and implementing compensatory controls.

A clear example is physical risk assessment, which evaluates a company’s exposure to climate hazards. Banks need precise location

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Leveraging AI to Detect Emerging ESG Risks Despite challenges, AI has demonstrated its potential in identifying emerging ESG risks. Predictive models analyze vast datasets, flagging risks that might otherwise go unnoticed. However, AIdriven models are not infallible.

Masondo views AI integration as an ongoing learning process. “While models have limitations, their continued development remains essential,” he says.

Financial institutions must invest in AI solutions, refine methodologies as new insights emerge, and incorporate human judgment as a safeguard. “After three years of implementation, we’ve seen significant progress,” Masondo says. Initial skepticism from relationship managers has transformed into active engagement.

Balancing Automation with Human Oversight As AI plays a larger role in ESG credit risk assessment, financial institutions must balance automation with human oversight. AI can process data faster than any analyst, but responsibility for risk assessment decisions must still rest with financial professionals.

“I compare generative AI to autonomous vehicles – while the technology may execute operations, ultimate responsibility resides with the human operator,” Masondo says.

Financial institutions implement validation processes for all AI-assisted outputs.

Client-facing communications undergo multiple rounds of verification, and AI models used for data analysis follow rigorous validation protocols.

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The Future of AI in Credit Risk Management Looking ahead, AI will continue to transform credit risk management, but success depends on how effectively financial institutions integrate these technologies. “AI represents a truly transformative technology, but success lies in learning to work effectively with these tools,” Masondo observes.

Masondo likens this transition to the adoption of Excel in the 1990s. Initially feared as a job-threatening tool, Excel ultimately enhanced accountants’ capabilities. AI is following a similar trajectory in credit risk management.

Yet, as AI-driven early warning systems advance, financial institutions must reconsider how they assess professional excellence. “If AI enables consistently high-quality early warning alerts, we must reconsider how we evaluate excellence in credit management,” Masondo says.

Governance frameworks for AI in financial risk assessment remain in early stages, but regulators and industry practitioners are working to establish best practices. Many financial institutions proceed cautiously, mindful of reputational risks.

The Road Ahead AI-driven early warning indicators are revolutionizing ESG credit risk assessment, offering financial institutions unprecedented capabilities.

However, as Masondo emphasizes, success depends on a balanced approach that integrates AI’s power with human expertise.

As financial institutions refine their AI strategies, they must ensure automation enhances, rather than replaces, decision-making. The key to success lies not in technology alone, but in the ability to adapt and innovate.

As Masondo says, the future of AI in ESG credit risk assessment is about empowering analysts with the tools to make better, faster, and more informed decisions.

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Teamwork Makes the Dream Work: Redefining the Role of Risk in Modern Organizations

Deb Barnes is the Chief Risk Officer at OMERS, one of Canada’s largest defined pension schemes.

Over a career spanning nearly 20 years she has previously worked in senior roles within financial services organizations in both Australia and the UK.

Early next month, leading risk professionals will gather in London for CeFPro’s Risk Evolve conference. Over two days, experts will debate the future of non-financial risk and discuss how organizations can highlight their most material risks.

Deb Barnes, Chief Risk Officer at OMERS, will lead a session on effective risk escalation, advocating for better engagement between risk teams and financial services organizations to enhance decision-making.

Barnes reflects on past stereotypes of the risk function as reclusive and obstructionist but emphasizes its evolution over the past 15-20 years.

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Elevating the Role of Risk Barnes explains that modern risk is not just about compliance. “We’ve evolved from being complianceheavy to recognizing that risk is a people and relationship business,” she says. Rather than enforcing rules, risk teams now facilitate informed decision-making.

At OMERS, new risk frameworks focus on identifying material risks and fostering transparent conversations.

“We can’t manage what we don’t see,” Barnes states, emphasizing the importance of visibility and dialogue.

Balancing Innovation and Caution Barnes insists risk should be seen as an enabler rather than a barrier.

“Every business needs to take risks. We just need to ensure they’re smart risks and have strategies to anticipate and respond effectively.”

She stresses that modern risk management balances caution with innovation, especially in an era of rapid technological advancement.

“It’s about judgment—knowing when to push and when to hold,” she explains. AI and other technologies offer both opportunities and risks, requiring careful navigation.

Fostering Psychological Safety and Collaboration Barnes draws parallels between risk management and relationshipbuilding. She likens it to physical fitness—developing trust gradually to enable open conversations.

She recalls situations where she had to oppose a deal but was respected because of prior trust. “By the time we

had that conversation, he knew I was a true partner. I wanted him and the business to succeed.”

Creating psychological safety is crucial. Employees must feel heard and valued. “People are looking for three questions to be answered: Did you see me? Did you hear me? Did what I say mean anything to you?” she notes.

Agility in an Unpredictable World Barnes stresses the need for agility in risk management. Annual planning has shifted to continuous monitoring and real-time adaptation. Risk teams must foresee and prepare for emerging threats.

As the conversation closes, she reflects on balancing innovation and caution. “It’s the ultimate example of risk and opportunity,” she smiles.

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The State of Financial Reporting in Banking Ed Kennedy, Workiva’s Global Financial Services Solution Owner, discusses the fragmented and outdated reporting practices of banking and the need for improved efficiency, agility, and transparency in order to keep up with compliance–and beyond.

Ed Kennedy, Global Financial Services Solution Owner, Workiva

It's no secret that the regulatory landscape for banks is constantly evolving, becoming more complex and demanding with each passing year. As someone who's spent over 15 years working with financial institutions, I've seen first-hand the challenges that banks–especially small- and medium-sized enterprises–face in keeping up.

Recently, I had the pleasure of chatting with experts from US Bank and BNY about the state of financial reporting for banks. Across the board, banks are facing increasing pressure to maintain accuracy, transparency, 38

and timeliness in regulatory submissions. What became abundantly clear is that fragmented, outdated systems are simply not sustainable.

Think about your own experience.

How much time do you spend wrestling with spreadsheets, chasing data across disparate systems, and manually reconciling information?

With all the versions, uploads, downloads, and handoffs, how confident can you be in the accuracy and completeness of your final reports? And how much time do you have left to truly analyse your data and make informed decisions–rather than just constantly micromanaging requests?

In our conversation, Simon Rasin, Senior Director, Senior Managing Counsel, BNY, raised an even greater issue of disconnected processes: “Do I need to be developing more sophistication about the whole suite of tools that I will need to elevate not

just my reporting and my data, but all the governance and knowledge around that? A bank can do everything right…and have a terrible time showing their governance around it.”

The cost of doing nothing Sticking with the status quo carries significant risks. As Simon pointed out, regulators are increasingly scrutinising the processes behind the numbers. They want to see clear audit trails, robust governance, and evidence of data quality. Failure to meet these expectations can lead to: •

Regulatory fines and penalties: These can be substantial, impacting your bottom line and damaging your reputation.

• Capital add-ons: Restricting your lending capacity and hindering growth.

Increased scrutiny and supervisory attention: Diverting valuable resources and disrupting your operations.

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“Not doing anything is not an option. The risk of non-compliance is huge. Not only is it about mistreating your reports, but it is also about regulators looking into it, scrutinizing it, and that can lead to a number of penalties or sanctions. It can be reputational damage to the bank.”

Sudhir Kumar, Head of Capital Management Oversight, US Bank

The opportunity of reporting automation The Red Queen from Lewis Carroll’s classic Alice in Wonderland sums up the situation–and opportunity–banks are facing rather well: “...here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”

While Wonderland is a fantastical world, the always-moving regulatory and competitive environment banks must operate in is quite real. That’s where purpose-built reporting and compliance technology comes in.

Modern reporting platforms unify data, people, and processes in a secure, audit-ready workspace, enabling teams to accelerate their reporting cycles, while mitigating risks along the way.

Imagine a world where: • Data is centralised and readily accessible. A single source of truth empowers everyone, from the front line to the boardroom, with accurate, up-to-date information.

• Workflows are automated and streamlined. Automated data 40

•

•

collection, validation, and report generation free your team to focus on higher-value activities.

Transparency and auditability are built-in. Clear data lineage and audit trails provide regulators with the assurance they need, while also facilitating internal control and governance.

Collaboration is seamless and efficient. Break down silos and foster communication between departments, ensuring everyone is on the same page.

Outpacing compliance–and beyond One thing is certain: regulator pressures will not be letting up anytime soon. Streamlining your reporting processes is not only a compliance exercise–it can be a competitive advantage. Meet regulation in stride, reduce risk, and free up your team to focus on what matters most: growing your business.

Listen to our entire conversation on the state of financial reporting in banking here

Bridging the Divide: Industry vs. Regulatory Expectations

Evolving regulations, market shifts, and rising costs are putting financial reporting in the spotlight. Our latest report uncovers key concerns from industry leaders, revealing gaps between internal assessments and regulatory expectations.

Stay ahead - understand the challenges, mitigate risks, and strengthen your reporting framework.

Read the report for free now > 41

WHAT'S BEEN HAPPENING...

NEWS

Round up of news stories in March

Risk & Finance in Focus: Latest Headlines

New Report Suggests AI is Reshaping Insurance Underwriting

Allianz and AWS are drastically reducing decision times and improving accuracy in insurance underwriting, using AI to streamline risk assessments and fraud detection. View here >

Third-Party Cyber Risks Drive Surge in Insurance Claims, Report Finds

Ransomware attacks on vendors proved to be the most damaging, contributing to 42% of third-party claims and 62% of total incurred losses.

View here > 42

FDIC Approves Independence Bank Liquidation Amid Fraud Allegations

Former executives were implicated in a high-risk lending scheme involving illegal fees on SBA loans, leading to $8.8m in regulatory penalties and legal battles.

View here >

Wells Fargo Abandons NetZero Targets Amid Growing Industry Shift

Wells Fargo has abandoned its netzero financed emissions targets for 2050 and 2030, citing external challenges. The decision aligns with a broader industry shift, following BP’s rollback of its own climate goals.

View here >

Is Deregulation Turning the U.S. Into a Financial Crime Haven?

The Trump administration’s deregulatory push favors kleptocrats and crypto speculators while weakening safeguards against financial crime. The U.K. and Nordic nations are stepping up to enforce transparency and AML regulations..

View here > 43

TERMINAL RISK: Heathrow Fire Sparks Third-Party Scrutiny Mark Norman, Head of Content, CeFPro

If March’s fire at Heathrow taught us anything, it’s that the weakest link in a complex infrastructure chain can ignite more than just a physical blaze - it can set fire to assumptions about risk, accountability, and operational resilience.

The fire at Terminal 2’s service yard, though swiftly contained and causing no injuries, brought the airport to its knees for a period of 24 hours, and its effects are still being felt through the ongoing disruption to flights.

But that is just the public face of an operational emergency that, in microcosm, dwarfed that of last summer’s Crowdstrike outage. Behind the scenes, it raises deeply uncomfortable questions about third-party risk management.

The incident, reportedly linked to the operations of an external contractor, underlines a broader vulnerability facing critical infrastructure providers: the reliance on vendors whose actions can impact brand reputation, passenger safety, and even national security.

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Smoke Signals in the Supply Chain Modern airports are sprawling ecosystems, relying not only on internal teams but a web of external suppliers, contractors, and service providers.

In this sense they perhaps present the most telling example of the extent to which frontline commerce and industry relies on third party supply chains.

From baggage handling to catering, maintenance to IT systems, the sheer volume of outsourced operations creates a hidden interweaving of dependencies.

In Heathrow’s case, the fire was not caused by a failure in core airport infrastructure, but rather by activities undertaken in a contracted area – highlighting the cascading risk of third-party involvement.

Third-party risk has traditionally been viewed through the lens of compliance or cost efficiency.

But incidents like Heathrow’s fire expose a more existential threat: that operational integrity can be

held hostage to entities outside the immediate control of any given organization.

Risk Management in the Age of Outsourcing Outsourcing is hardly new. In fact, it has become de rigeur in the pursuit of cost efficiency and immediacy of access to specialist knowledge and skills.

These and other efficiencies make third-party relationships an essential part of modern business models. However, the Heathrow incident is a timely reminder that these relationships must be governed with a rigor equal toand perhaps even greater than – that applied to internal operations.

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As Europe’s busiest airport hub, Heathrow Airport Holdings has a well-regarded reputation for managing a complex operation, but even robust systems can be tested when assumptions about risk controls in third-party environments fail.

The problem isn’t necessarily with outsourcing itself, but with how these relationships are structured, monitored, and enforced.

Due diligence is often frontloaded – heavily focused on the onboarding phase of a new supplier or contractor. What tends to receive less attention is continuous oversight: are safety protocols being followed day-today? Are subcontractors being supervised? Is there a clear line of accountability when something goes wrong?

In high-risk environments like airports, these questions aren’t just bureaucratic – they are mission-critical.

A Test of Resilience One of the more alarming aspects of the Heathrow fire is just how quickly it disrupted airport operations, even though the fire itself was relatively contained.

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Flights were delayed, passengers rerouted, and services suspended.

While no lives were lost, the reputational and logistical costs were significant.

This points to a broader issue in operational resilience. Regulatory authorities, including the UK’s Civil Aviation Authority, have emphasized the need for business continuity planning and robust resilience frameworks.

But when third parties are involved, resilience becomes a shared responsibility – one that is difficult to enforce without the right structures in place.

This challenge is compounded by the layered nature of thirdparty relationships. Many primary contractors further subcontract work to others, creating a daisy chain of accountability through fourth and nth party reliance.

When something goes wrong, as it did at Heathrow, tracing the fault line can be as complex as dealing with the incident itself.

Rewriting the Risk Playbook If this fire is to serve as a catalyst for change, the aviation industry – and critical infrastructure

sectors more broadly – must move toward a new model of third-party risk governance.

Firstly, there needs to be greater integration between internal and external teams. Contractors should not be seen as separate entities operating in isolation, but as extensions of the organization’s core operations.

Joint training, shared safety protocols, and real-time communication systems can help to bridge the divide, but this is not, in and of itself, sufficient to address the wider issues. Technology can play a more prominent role. Real-time monitoring, digital compliance tracking, and predictive analytics can offer insights into where risks are most likely to emerge.

Looking Ahead The Heathrow fire was, thankfully, not a tragedy. But it was a wake-up call. Because in environments where a single spark can ground hundreds of flights, thirdparty risk isn’t just a business issue – it’s a systemic one. And the lessons are there for every business to see.

Heathrow and other major airports are already investing heavily in digital transformation; applying the same rigor to contractor oversight could reap significant benefits.

Finally, accountability frameworks need to be reimagined. Contracts must be more than transactional – they should also serve to facilitate greater governance and enhanced scrutiny in order to define clear standards, escalation protocols, and consequences for non-compliance.

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WHAT’S COMING UP...

Event

2-3 APR

RISK EVOLVE London, United Kingdom View details >

www.risk-evolve.com

Event

20-21 MAY

RISK AMERICAS NYC, United States of America View details >

www.risk-americas.com

Event

4-5 JUN

AI IN INSURANCE EUROPE London, United Kingdom View details >

www.cefpro.events/ai-insurance-europe

Event

11-12 JUN

VENDOR & THIRD PARTY RISK USA London, United Kingdom View details >

www.cefpro.events/third-party-risk-europe

To view our full upcoming events calendar click here or visit, www.connect.cefpro.com/upcoming/events

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