Redefining risk playbooks amid volatility and AI disruption

The fast-moving mechanics of geopolitics, market volatility, model governance, liquidity dynamics, de-dollarisation and the increasingly urgent question of how to integrate generative artificial intelligence (GenAI) responsibly in risk and compliance functions were among the key topics delved into by senior market risk leaders at Risk.net’s Market Risk Leaders’ Network meeting held in New York in June.

Discussions spanned best practices around resilience, adaptability and clarity of purpose amid uncharted markets and political uncertainty.

Key takeaways:

• De-dollarisation remains a slow-moving trend with limited near-term impact, as markets struggle to absorb major shifts in capital flows.
• Markets are showing reduced sensitivity to short-term news and volatility, reflecting a growing focus on long-term fundamentals amid continued policy uncertainty.
• Traditional risk correlations are breaking down, forcing firms to model stress in both directions: for example, rising yields alongside a weakening dollar.
• Regulators may be softening their stance, with fewer matters requiring attention issued and some openness to firm-specific assumptions – though scrutiny on liquidity and AI governance remains high.
• AI adoption is accelerating, particularly for documentation and code generation, but model risk governance and regulatory uncertainty remain major roadblocks – particularly around GenAI – and are hampering broader progress.
• Private credit and shadow banking growth are putting pressure on regulated lenders as non-bank firms outmanoeuvre banks on flexibility and capital efficiency.