Managing risk in an increasingly uncertain geopolitical climate and impacts post Brexit

Managing risk in an increasingly uncertain geopolitical climate and impacts post Brexit

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By Adrian Burbanks, Deputy Chief Executive Officer, Agricultural Bank of China (UK) Ltd

Adrian, can you please tell the Risk Insights readers a little bit about yourself and what your current professional focus is?

In April 2017 I was appointed as Deputy Chief Executive Officer of Agricultural Bank of China (UK) Ltd in London with primary responsibility for the risk and compliance functions in the UK business and holding the SM4 designation. This followed three years at National Bank of Abu Dhabi as CRO and a career in risk at global financial institutions including HSBC, Merrill Lynch, Deutsche Bank and UBS. The past year has been focused on ensuring that the UK entity has best in class risk practices, policies and processes and on supporting the parent bank’s application to open a branch in London, which will happen at the start of the second quarter.

At the Risk EMEA 2018, you will be discussing managing risk in an increasingly uncertain geopolitical climate and the impacts post Brexit – Why is this a key talking point in the industry right now?

The post BREXIT world remains very uncertain. Whilst the optimal result for the financial services industry would be a status quo outcome, it is clear that for politicians and civil servants across Europe that the industry will be a central negotiating focus with each jurisdiction jockeying for a solution that serves their own national interests. Hence there are more words than actions and contingency plans rank higher than material strategies. Whatever the future, there are clearly many opportunities as well as downside risks and fortune is likely to favour the brave.

How can firms effectively manage risk whilst dealing with uncertainty surrounding Brexit?

It would be a mistake to make too many hard decisions that result in significant cost outlay given the current uncertainties. More important is to have clear contingency plans in the event that the current legal and regulatory structures would prohibit business in the event of a hard separation for the banking industry. It is also critical not to take the eye off the current risk portfolio, developing and enhancing sound risk management tools and ensuring regulatory compliance should not be de-emphasized given the BREXIT distractions. No regulator is going to allow a disorderly exit threaten the stability of the national financial market place and we should avoid a sense of panic provoking hysterical responses.

Can you give a brief overview of the current regulatory uncertainty in the US and why this is a leading concern?

I don’t see regulatory uncertainty in the US as a leading concern. The importance of dollar clearing to all major financial institutions will always ensure that adherence to US requirements is critical. Current changes are likely to favour US financial institutions in general, but an easing of regulation would have wider benefit across the industry.

Without giving too much away, how can fragmentation across Europe lead to competitive advantage for some firms?

Large financial institutions are like ocean bound tankers, they have developed complex internal structures and policies that make it more difficult to adapt quickly to changes in one part of the market. Smaller financial institutions may have greater flexibility to carve out profitable businesses in niche sectors that have not become commoditized. The more that markets fragment, the greater these opportunities are. That is why in a post Brexit world subsidiaries and branches of non-European banks with strong local autonomy are likely to find areas for profitable business propositions that might have been more difficult to develop previously.

Finally, what risk and regulatory challenges do you foresee in the future? And have you got any advice for your peers on how to best handle them?

After a long period of harmonization I think we may starting to see national interests become more strongly asserted in regulation and financial practice in the future. Competition to hub financial services is likely to intensify and regulation may become less unified. In this environment keeping decision making and control functions in close proximity to the local market and customers will be essential. So my advice is to ensure good local autonomy, and enhanced internal communication across risk functions. On the broader risk front cyber risk will continue to escalate as more payment activity shifts onto less transparent platforms and all risk managers should ensure that have good technology advisers in their teams. As ever risk managers need to be flexible, think outside the box and remember that while all models tell us something about the real world, none will ever predict actual outcomes and we should always be ready for the unexpected.

 

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