When Emerging Risks Become Current Risks: A Wake-Up Call for Banks

A story of ignored warnings??

Imagine a bank’s IT team notices subtle anomalies in their firewall logs—nothing too alarming, just a handful of unauthorised access attempts. Dismissing it as routine noise, the team doesn’t dig deeper. Weeks later, the bank’s systems are compromised by a massive ransomware attack that halts operations for days, costing millions in revenue and reputational damage. This is the perfect example of an emerging risk snowballing into a current crisis.??

Banks and financial institutions must master the art of identifying when an emerging risk becomes a current one. Failure to do so can lead to devastating consequences. The key lies in proactive monitoring, timely intervention, and robust response frameworks—waiting too long or dismissing early signs can be costly. So, how do banks know when to act? Let’s break it down.??

How emerging risks become current risks??

Emerging risks don’t announce their arrival. Instead, they evolve quietly—through shifts in technology, geopolitics, regulations, or even customer behaviour. Here’s when a risk officially becomes "current":??

1. When it reaches the implementation stage:?

Emerging technologies like AI move from testing to deployment, making it a current risk.??

2. When the likelihood increases:??

A brewing trade conflict escalates, raising the probability of financial disruption.??

3. When early signs of impact emerge:??

Cybersecurity anomalies start appearing more frequently—these aren’t just warnings; they’re precursors to bigger attacks.???

4. When losses occur:?

?The moment financial losses—however small- begin to materialise, the risk is no longer emerging; it’s real.??

The transition from emerging to current risk is often subtle, making it essential for banks to stay alert and proactive.

The ripple effect of ignored risks??

Let’s take cybersecurity threats as an example. In recent years, banks globally have faced increasing ransomware attacks and data breaches. At first, these risks were considered “emerging,” but with the rise of sophisticated hacking tools, they’ve quickly become current risks.??

Similarly, regulatory risks evolve with geopolitical changes. Non-compliance with ever-changing regulations can attract hefty penalties. By the time banks realise they’re lagging, the damage may already be done. Nip it in the bud - that’s the mantra to avoid playing catch-up with risks.??

What banks should do before It’s too late??

Here’s what financial institutions should prioritise to prevent emerging risks from becoming full-blown crises:

1. Horizon Scanning and Risk Assessments?

Banks need to scan the horizon continuously for potential risks. This involves tracking early indicators like new regulations or technological disruptions and conducting regular risk assessments to gauge the likelihood and impact.

2. Early Action Frameworks?

Set up protocols for early action. If a risk shows signs of materializing, intervene early—don't wait for losses to occur. For instance, cybersecurity teams should respond to minor anomalies immediately, preventing them from escalating.

3. Regular Board-Level Discussions??

Emerging risks should never be discussed casually. Schedule quarterly discussions with risk committees and semi-annual board reviews. This ensures senior leadership remains aligned with evolving risks and ready to act.

?4. Stress Testing and Scenario Planning??

Proactively run scenario analyses - what would happen if a cyberattack hits during peak operations? Or if a trade conflict disrupts cash flow? These exercises will help banks prepare and mitigate risks before they strike.

Examples of Success and Missed Opportunities??

Consider how Singapore’s bank responded to cryptocurrency risks- they implemented early regulations to manage volatility, staying ahead of potential losses. In contrast, a European bank that dismissed early signs of AI-powered fraud ended up with millions lost and a damaged reputation. The difference? Proactive vs. reactive risk management.??

Navigating the Digital Landscape??

The rapid rise of digital transformation brings both opportunities and risks. Banks embracing AI and blockchain must simultaneously address potential system outages, data integrity issues, and compliance risks. Ignoring these risks now means facing severe consequences later. Stay ahead of the curve, and these risks can become opportunities for growth.??

Wrapping Up: Don’t Let It Snowball??

In today’s volatile environment, risks that seem distant can become immediate threats in no time. The key is to act swiftly and decisively. Banks must:

Monitor early warning signs continuously??

Engage senior leadership proactively??

Deploy preventive measures early??

In the words of a seasoned risk officer, “By the time it’s obvious, it’s too late.” Banks and financial institutions need to bridge the gap between emerging and current risks, ensuring nimble responses that protect them from financial and reputational harm.