Credit and economic risks have emerged as the top concerns this year, according to a recent survey of Chief Risk Officers in Canada’s financial services sector by the Global Risk Institute.

Cyber risk, geopolitical risk, and technology/innovation risk also feature prominently, reflecting a shift in the risk landscape from the generally positive market conditions of the past decade. The survey results, which also highlight differences in risk perception across banking, insurance, and pension sectors, underscore the need for comprehensive risk management strategies.

The survey reveals that credit risk has risen from third place last year, while economic risk maintains its first-place position for the fourth consecutive year. This shift is attributed to changes in the Canadian economy, which, according to one CRO, has transitioned to a “different structural market regime without monetary policy tailwinds that are making investing more challenging.”

Cyber risk ranks third among the top risks identified over the next five years. The increasing sophistication of cyber criminals, the ubiquity of cyber risk across institutions of all sizes, and the rise in phishing and malware incidents in 2023 underscore the importance of this threat.

Geopolitical risk remains the fourth most significant risk, reflecting the sustained impacts of conflicts in Europe and the Middle East, alongside escalating global tensions. These conflicts have led to substantial disruptions in supply chains worldwide and have led to more pronounced fluctuations in commodity pricing, particularly oil and gas.

For the first time, technology/innovation risk has entered the top five risks to the Canadian financial system, overtaking talent risk. This reflects the widespread use and rapid adoption of new technologies, as well as public discussions regarding safety and security issues inherent in AI.

“An interesting change in this year’s survey results is that concerns about the top risks are more evenly distributed. Last year, almost half of respondents identified economic risk as their top concern. This year, three risks (credit, economic, cyber) were each identified as a top risk by about one quarter of the respondents. This suggests a more challenging environment for risk managers as multiple risks compete for their attention,” the report’s authors stated.

At the organizational level, respondents ranked cyber risk and technology/innovation risk as the top risks to their organizations’ growth over the next five years. This aligns with the ongoing focus on organizational resilience emphasized by both the industry and regulators.

The survey also reveals differences in risk perception across banking, insurance, and pension sectors. For instance, while credit risk is the top concern for banks, climate risk is the top concern for insurance companies, and geopolitical risk is the top concern for pension funds.

In the face of these diverse risks, the survey highlights the importance of comprehensive risk management strategies that extend beyond internal protocols to include third-party relationships. As the risk landscape continues to evolve, organizations will need to manage a broader set of top risks and consider the interconnections among them.

Read the full Global Risk Institute report here. &

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