Geopolitical tensions have overtaken cybersecurity as the biggest risk facing financial services firms in 2025, according to a study of financial services business leaders.

The analysis, conducted by Forvis Mazars, identified geopolitical risk as the top risk, followed by cybersecurity, financial crime, generative artificial intelligence (AI), and climate and sustainability.

Forvis Mazars noted that political elections held in 2024 had introduced uncertainty, which in turn had fostered social unrest both domestically and around the world.

Firms were encouraged to evaluate how changing geopolitical dynamics could affect their business activities.

“The shift from unipolarity to multi-polarity fuels more volatile politics and links geopolitical instability with regulatory unpredictability, heightening macroeconomic volatility in 2025,” Forvis Mazars stated.

“This volatility affects interest rates and market stability, complicating business decisions and increasing vulnerabilities in the global financial system.

“These risks, and the actions by regulators underscore the need for financial services firms to enhance their geopolitical risk assessment capabilities and develop strategies to mitigate potential impacts.”

Cybersecurity remained high on the list of risks, with the evolution of cyber threats continuing to pose “significant challenges” for firms.

Financial services firms remain prime targets for cyber criminals and were urged to conduct more frequent employee training and adopt advanced detection tools.

Cyber criminals and other fraudsters have found new opportunities though technological advancements and the rise of digital financial services, leading to financial crime retaining its third-place spot on the risk list.

Financial services firms are increasingly adopting AI, but the rising complexity and scale of AI tools were making it challenging to address risks retrospectively, Forvis Mazars noted.

“AI differs from traditional modelling technologies in several ways, creating new complexities and risks,” the company said.

“Of particular concern is the limited explainability of complex models, which makes it difficult for humans to understand and spot errors.

“Furthermore, the automated nature of AI can lead to key decisions being made without management’s oversight, potentially undermining the entire risk framework.

“Effective AI risk management should account for the firm’s strategy, risk governance and the expertise within the firm.”

Rounding off the top five risk list was climate and sustainability, with global events and regulatory requirements maintaining the risk category’s high position on firms’ agendas.

Firms were urged to understand how climate change and biodiversity loss can affect their strategies, as well as how transition risks might expose them in the future.

“The risks faced by financial services firms are complex, interconnected, and rapidly evolving, making them challenging for executives to manage,” Forvis Mazars stated.

“This complexity is evident in the link between advancements in AI technology and the rising threats of cyber-attacks and financial crime.

“It is therefore imperative that firms establish robust governance and foster a strong risk culture, integrating effective risk management practices into day-to-day operations.

“These measures should support independent risk management functions capable of identifying and monitoring emerging trends, ensuring that these risks are addressed by key decision-making committees and incorporated into strategic initiatives.”

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