Experts at Sibos 2023 agree that geopolitical resilience is a complex challenge, particularly in today’s interconnected and volatile world.
As a global payments facilitator, Swift has a unique perspective on how geopolitical volatility and the interconnectedness of our world impact the financial system. Chairing the big issue debate on geopolitical resilience at Sibos 2023, David Woerndl, Chief Risk and Control Officer at Swift, said:
“Putting aside the impact of current conflicts, geopolitics and shifts in geopolitics have never had a bigger impact on financial institutions than they do today. With globalisation and the ecosystem now being so interconnected, the effects of changes in the geopolitical landscape are impossible to ignore.”
Some say that the world is in a “permacrisis”, struggling with issues from new conflicts to the pandemic, and inflation to the cost-of-living, as well as the underlying urgency around climate impacts. And it’s no longer just the immediate impacts of these events that concern people, according to Christopher Woolard, Partner at EY.
“Historically I think people would think about the immediate manifestation of a geopolitical risk, you know, whether that was a war, whether that was some kind of political incident, but as we've seen from recent events, you can then begin to see quite profound effects on the economy… a whole range of secondary issues that may play out from a primary cause. So how do we think about this in its widest context?” he asked.
In addition to these primary events and their immediate and secondary consequences, risk officers are also thinking about how globalisation links their financial systems and economies.
“One thing that keeps me up at night as a CRO is the interconnectedness risk that we all run, the interlocks we all have with Swift and all of our payment infrastructure,” said Deborah Hrvatin, Chief Risk Officer of CLS Group. “I think the most important thing that we can do is engage with our market participants, as well as our central bank community, to really address this particular risk.”
The factors in geopolitical resilience
As banks game out scenarios and think about their risks, they also have to keep their customers firmly in mind, advised Paul Horlock, Chief Payments Officer of Santander UK.
“We are seeing increasing impacts from local and global decisions that mean we have to spend a long time predicting, preparing and then understanding how we're going to mitigate resilience factors on an ongoing basis. And we’re always thinking about what it means from a customers’ perspective,” he said.
Challa Sreenivasulu Setty, Managing Director at State Bank of India, agreed.
“How is geopolitical risk going to impact our customers? And how do we provide to them, at an institutional level, an uninterrupted service? That is going to be the critical component when we talk about resilience,” he said.
Financial institutions need to think about how resilience is a function of the business, not just the risk department, and then how its resilience is a function of the wider system.
“In any executive team, there's a chief risk officer and the responsibility of that risk officer is to identify all those crazy scenarios that could potentially cause disruption - and nothing is too crazy to think about,” said Tracey Black, President and CEO of Payments Canada.
“But also, it's the CIO’s job to make sure that we can recover from those situations… It’s also about how quickly you can recover. How effective are the processes around that recovery, and how do you ensure that there's not a disruption in the broader ecosystem? So there really is interconnectedness.”
Financial institutions also need to remember that geopolitics isn’t just the headline-grabbing moments, it’s also the small changes.
“There are geopolitical events that you have to be resilient to that are day-to-day matters - tariffs, or non-perishable goods stuck at a port, or problems with a tax authority,” Soon Chong Lim, Global Transaction Services Group Head at DLS, pointed out.
Building resilience requires awareness of these issues, but also coordination and information sharing across the global financial system. Financial institutions have to make their interconnected nature work for them.
If you have a Sibos digital pass, you can watch the full debate here
The views expressed on these pages are those of the authors and/or the institution they represent, and not necessarly those of Swift.