Current Issues: Climate Risk, FinTech, and Regulation
The evolving landscape of financial risk: climate-related financial risks, digital assets, AI in risk management, and the latest regulatory developments.
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Emerging Risk Radar
Current issues questions usually test how new themes map back into familiar governance, liquidity, and model-risk frameworks.
Why it matters
Treat climate, AI, cyber, and regulatory shifts as risk-transmission channels rather than isolated headlines.
Current Issues: Climate Risk, FinTech, and Regulation
Climate Risk
Climate risk has emerged as a first-order concern for financial institutions and regulators. GARP has significantly increased FRM coverage of this topic.
Physical Risk vs. Transition Risk
Physical Risk: Direct financial impact from climate events
- Acute: Hurricanes, floods, wildfires causing property damage and business interruption
- Chronic: Rising sea levels, temperature changes affecting agriculture and real estate values
Transition Risk: Financial impact from the shift to a low-carbon economy
- Policy: Carbon taxes, emissions caps, environmental regulations
- Technology: Stranded assets (fossil fuel reserves that can never be extracted profitably)
- Market: Changing consumer preferences, green investment mandates
- Reputation: Stakeholder pressure on high-emission companies
Scenario Analysis for Climate Risk
Traditional stress tests don't capture climate risk well because:
- Climate scenarios unfold over decades, not days
- History provides limited guidance (unprecedented scale of transition)
- Physical and transition risks interact in complex ways
The **NGFS
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