Many drivers are shaping the context of risk management today. Macroeconomic headwinds, global geopolitical uncertainty, and ever more frequent and damaging cyber events have been in the vanguard of the challenges leading to heightened risk perceptions.
MACROECONOMIC HEADWINDS
Macroeconomic headwinds driven by global and Asian debt levels, low growth, anti-globalization sentiments, increasing policy uncertainty and the expected hike in US interest rates, all represent significant challenges. As Andrew Glenister, Regional Risk Advisor at BT Hong Kong, notes: “Macroeconomic and geopolitical risks are an increasing part of our internal discussions, particularly across Asia and Africa, and recent surprises on the world’s political scene have demonstrated that nothing can be taken for granted, and that the experts aren’t always right! At the same time our business is facing new challenges from the changing regulatory and global environment and can be impacted by a far greater range and variety of events from across the world.”
These challenges are particularly pronounced for export-dependent economies, which comprise most of Asia. Concurrently, many leading economies in Asia-Pacific such as China, Singapore, and Australia are struggling to maintain labor productivity and productivity growth. Productivity-enhancing policies are required, including capital investments in new technology and workforce development. These new technologypowered productivity strategies will inevitably bring modifications to risk management and the role of the risk function. Risk teams will need to use their established capabilities to anticipate potential implications of this context, and develop new capabilities for managing risks using emerging technologies.
HIDDEN RISKS ARISING FROM NEW TECHNOLOGIES
Global perceptions of risk, as measured in Marsh & McLennan Company’s annual work with the World Economic Forum, are more elevated than ever. Technological advancements, for example, are increasingly exposing organizations to emerging risks such as data fraud and cybersecurity threats. Indeed, the WannaCry and Petya ransomware attacks were a harsh reminder of this for firms across the globe. This point of view is well echoed in our survey, in which 51 percent of respondents state that cybersecurity risk is the second-most impactful risk for their firms, following strategic risk.
In fact, two of the three most pressing global risks identified by risk managers relate to technology and cybersecurity. Moreover, as reflected in the MMC Asia Pacific Risk Center’s annual Evolving Risk Concern in Asia-Pacific report, the interconnectedness of risks – which may not be apparent to businesses – compounds the impacts of risk events. For example, the effects of advancement in automation may lead to rising economic inequality as it threatens to displace manufacturing jobs that have been the main livelihood of millions of lower-income Asians. As Susan Valdez, Senior Vice President and Chief Corporate Services Officer of Aboitiz Equity Ventures (and a PARIMA Philippines board member) points out, “Corporate digital transformation creates a whole new set of risks and could alter the context of cyber risk and information security risk. Because of the evolving nature of threats from hacking, malware, phishing and other forms of attacks, existing mitigations are constantly challenged and need to be continually updated to address vulnerabilities.” The confluence of risks facing Asia-Pacific is posing significant challenges to businesses.
THE EVOLVING REGULATORY LANDSCAPE
A “deluge of regulation” has followed the dramatic events of the Global Financial Crisis, especially in financial service industries. Non-financial service industries also face a rising tide of regulation, motivated by trends such as cybersecurity concerns, rising anti-globalization sentiments and climate change, just to name a few. Asia-Pacific regulators are following international precedent by increasing oversight of multiple areas including stress testing, recovery and resolution planning, as well as in required capital estimation regulation.
An increasing number of Asia-Pacific countries including China, Singapore, and Australia have recently introduced cybersecurity laws to be in line with the global best practice. Moreover, rising protectionism including sudden changes in trade policies, taxes or tariff regulations have been witnessed in other regions, which also create increased pressure on risk management.
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