The looming debt crisis: What future risks will keep you up at night?

What are the latest risks at the forefront of CROs’ minds? We speak to Philip Best, CRO, Evelyn Partners, who shares what he considers the biggest risks and challenges CROs and risk managers will have to deal with.

I wanted to talk to you about the biggest shocks in the industry this year. What have been the standout news pieces for you?

I think, definitely, the biggest story this year has been the massive increase in interest rates and the speed of that, as a result of central banks’ desire to try and tame inflation. I think that led directly to the mini crisis in US regional banks. That’s probably been the biggest one.

As a result, what risks have been brought to the forefront for you?

I think we’ve come very rapidly to the end of a long period of very low financing costs and costs of money. A lot of people, both personal individuals and households, as well as corporations, have taken on a lot of debt, which they may now find to be unsustainable.

And this is not a good environment to be operating in. Looking ahead to the rest of the year, what risks do you think will keep you awake at night?

I think we will see an increase in default rates, both at a household level and also corporate level, which are obviously a result of the increase in interest rates. But leaving those aside, the ones that keep me awake always are cyber risks.

A business like ours runs on reputation. Any kind of data loss or inability to operate would be a major damage to our reputation, so cyber risk is always a big one for us, but also, rogue operators within the business. Fraud risk inside the business is something which we haven’t seen but worries me.

It’s one of those things that cost financial institutions a lot of money nowadays. Tell me about the emerging risks then. Do you consider fraud risk an emerging risk?

I wouldn’t call cyber risk or the resulting fraud risk emerging – they’re definitely already with us. As you say, as an industry, it’s an arms race and we spend a lot of money each year keeping up with the latest trends and fashions in cyber risk.

Looking forward in terms of emerging risks, I think back to the looming debt crisis because I think we’re just at the beginning of that at this point in time. I think the debt burden for households, corporates, and also governments is going to shape the economic future for the next few years. Unless, we can get on top of inflation and get rates down in the near future, which I think is reasonably unlikely.

Absolutely. Finally, I wanted to close on RiskMinds International. You’ll be joining us in November – what topics are you looking forward to talk about?

Probably not the technical ones. I think as a CRO, the thing we care about most is the culture of the organisation. I’m always interested in people who have a perspective on how you can change the culture.

We all have operational risk functions as well, but how do you really make that effective to actually reduce the amount of operational risk in a business? That’s what I’d like to hear about. And finally, the ongoing regulatory challenges – always interested to see where we thing regulation is going in the future.