Top risks facing financial services firms in 2025: key highlights

As part of our annual series on “Top risks facing financial service (FS) firms”, we have identified and ranked the key risks for financial services business leaders in 2025.

We discuss in the article below the top five areas that FS firms should prioritise in 2025. Our more detailed assessment can be found here, which contains further details on each risk mentioned in this article as well as other risks facing financial services firms and what they mean for your organisation.

Top risks 2025

In 2024, geopolitical and macroeconomic risks surged, driven by the uncertainty of political elections in numerous countries, escalation of the Middle Eastern conflict, and continued tensions surrounding the war in Ukraine. Cybersecurity threats remained a pressing issue, amplified by advancements in AI and increasing geopolitical tensions. The rise in financial crime highlighted vulnerabilities in digital banking and compliance challenges tied to fraud prevention and sanctions. Rapid advancements in artificial intelligence (AI) and machine learning (ML) tools introduced transformative potential, but also ethical and operational risks. Finally, the multiple severe climate-related events observed globally in 2024 underscored the urgency for FS firms to address transition risks, biodiversity impacts, and regulatory demands.

Together, these form the top priorities for 2025.

“Recent global developments have dramatically altered the environment financial service firms operate in. To navigate 2025, they must focus on agility in adapting to global uncertainties, embedding technological resilience, and aligning strategic priorities with evolving regulatory and sustainability demands. This comprehensive approach will help them manage a broad spectrum of risks effectively.”

Gregory Marchat, Group Head of Financial Services Advisory, Forvis Mazars in the UK

Our top risk for 2025 concerns geopolitical and macroeconomic risks

Geopolitical risks in 2025 stem from multiple areas of concern internationally. These risks underscore the need for FS firms to enhance their geopolitical risk assessment capabilities and develop strategies to mitigate potential impacts.

The change in government within the US may exacerbate the role of trade as a geopolitical battlefield, largely attributable to the imposition of high tariffs[1]. Furthermore, supply chains across the Middle East, Sub-Saharan Africa, South America and Southeast Asia are at risk of destabilisation.

From a macroeconomic perspective, the geopolitical tension which exists today has the potential to impact international cooperation and cause commodity shortages. The effects of the heightened macroeconomic volatility could be far-reaching, and the ability to make successful business predictions and decisions is hindered, leading to vulnerabilities within the global financial system. FS firms must prepare for increased risks across multiple domains.

“The increasingly complex international environment, fuelled by heightened geopolitical tensions and instability, requires careful navigation by financial service firms. In the EU, the European Central Bank (ECB) has included managing geopolitical and macroeconomic risks as a core focus for 2025-2027, requiring banks to have sound risk management and business diversification to address these risks.”

Eric Cloutier, Group Head of Banking Regulations / Head of Global FS RegCentre, Forvis Mazars in the UK

Cybersecurity threats remain very high and continue to impact the financial sector

Cyberattacks are increasing: 68% of ECB-supervised banks experienced at least one successful attack in 2023, and the number is expected to continue to be on the rise.

The increasing sophistication and frequency of cyber threats pose a significant concern for the financial sector, which is regularly targeted due to the sensitive information it handles. As these threats evolve, mitigation strategies must improve, including more frequent employee training and advanced technology to detect threats.

The use of AI is predicted to escalate cyberattacks in 2025, and quantum computing – in the event of a practical breakthrough – could outmanoeuvre traditional security measures, necessitating greater resources for cybersecurity.[2] Regulatory pressure is also mounting, with the Digital Operational Resilience Act (DORA) set to take effect in 2025, enhancing cybersecurity and operational resilience requirements for financial institutions[3].

“Authoritarian states have been implicated in cyber espionage and cyber warfare operations. The rise of AI has also amplified the risk of more sophisticated AI-driven cyberattacks. Given this importance, banks need to prioritise investment in cybersecurity and treat it as a vital strategic component that underpins their operational resilience.”

Anneli Tuominen, Member of the Supervisory Board of the ECB, “Enhancing banks’ resilience against cyber threats – a key priority for the ECB”, 26 July 2024

Financial crime is at the forefront of stakeholders and regulators minds

In 2024, FS Firms faced significant losses due to financial crime, with more than $3.1 trillion in illicit funds flowing through the global financial system[4].

Firms will continue to face financial crime threats in 2025 due to the technological advancements that have occurred in recent years, the rise of digital banking and financial services which has created new opportunities for cybercriminals. Cyberattacks, ransomware and phishing are becoming more sophisticated, targeting financial data and disrupting operations. FS firms must guard against data breaches, ransomware and other cyber threats.

Coupled with rising geopolitical tensions presents a major risk to FS firms and the system as a whole. Regulatory bodies will continue to intensify their focus on financial crime leading to strict compliance requirements and the potential for significant fines for breaches of money laundering and sanctions requirements.

The successful establishment of the Anti-Money Laundering Authority (AMLA) in the EU will hopefully exemplify how proactive supervision can better identify and mitigate financial crime risks, safeguarding the financial system.

“Financial crime risks will remain high in 2025; especially as bad actors continue to benefit from technological advances. Financial services firms must enhance internal controls, invest in anti-fraud technology, and conduct comprehensive risk assessments to effectively mitigate these risks.”

Luke Firmin, Director and Lead of Financial Crime Offering, Forvis Mazars in the UK

The issues surrounding AI advancement and ML tools

AI adoption is widespread, for example 75% of firms surveyed by the FCA and the Bank of England are using AI for internal processes, customer support, cyber-attack mitigation, fraud detection and money laundering prevention[5]. Therefore, as AI tools become more integrated into banking operations, the complexity and scale of these systems make it challenging to address risks retrospectively.

To manage these risks, many organisations are greenlighting projects aimed at mitigating potential threats and optimising opportunities presented by AI, developing risk management approaches and disseminating best practices across the industry. AI risk management should consider a wealth of factors including the firm’s strategy, risk appetite, risk governance and the expertise within the firm.

Global events and regulatory requirements maintain climate and sustainability risk high on firms’ agenda

In 2024, climate events including floods in Spain, a powerful hurricane in Florida and several wildfires in Chile caused a devastating loss to life, habitats and resulted in hundreds of billions worth of damages and financial loss[6]. These events highlight the escalating physical risks posed by climate change, with financial losses for banks and insurers reaching unprecedented levels.

Regulatory and supervisory frameworks are evolving globally to address climate-related risks, albeit at different pace. Despite urgency, ESG regulations and supervision remain fragmented globally. For instance, the U.S. is facing a growing anti-ESG movement[7], while the EU is leading the way with ESG regulations and supervision and the UK rapidly raising its priority level for the financial sector.

For example, the EU has introduced regulations like EU 2024/1787 to limit methane emissions from fossil fuel operations.[8] Additionally, the ECB’s supervisory priorities for 2025-2027 emphasise full compliance with climate-related and environmental risk management[9]. In the UK, the PRA will update its Supervisory Statement 3/19 in early 2025 to incorporate best practices for managing these risks[10]. The UK’s Sustainability Disclosure Requirements (SDR), implemented in 2024, require asset managers and banks to align with stringent sustainability criteria[11]. Globally, the IFRS S2 standard now requires climate-related disclosures, enhancing transparency and accountability. Authorities are also utilising advanced climate scenarios, such as the NGFS Phase V scenarios, to highlight increasing physical risks and the need for enhanced climate risk management strategies.

This regulatory push aims to combat greenwashing and ensure financial products genuinely support sustainable goals. Regulatory pressures will require significant investments in climate risk management and reporting systems.

For FS firms, resilience against climate-related risks requires enhancing their risk management frameworks to address the increasing frequency and severity of climate events. They need to invest significantly in advanced climate risk assessment tools and integrate comprehensive climate scenarios, such as those from the NGFS Phase V, into their risk management strategies. Additionally, banks must improve their data aggregation and reporting capabilities to meet stringent regulatory requirements.

Read further on our views on the NGFS Phase V climate risk scenarios, including progress and remaining limitations, in our latest article: NGFS phase V climate risk scenarios

Heightened pressure on FS firms to navigate the complex risk environment that will exist in 2025

The financial services landscape in 2025 is set to be shaped by a myriad of complex and interrelated risks. Geopolitical and macroeconomic uncertainties, cybersecurity threats, financial crime, advancements in AI and ML, and climate-related challenges will all demand the attention of FS firms. To navigate these turbulent waters, firms must prioritise agility, technological resilience, and strategic alignment with evolving regulatory and sustainability demands.

In this dynamic environment, a comprehensive and proactive approach to risk management will be essential. It is imperative for firms to establish robust governance procedures to integrate a strong risk culture and effective risk management practices into everyday business activities. By enhancing their risk assessment capabilities and investing in advanced cybersecurity measures, FS firms can better manage these risks. Additionally, staying ahead of regulatory changes and integrating sustainability into their core strategies will be crucial for long-term success.

Financial services firms that can adapt to these challenges and seize the opportunities presented by technological advancements and regulatory shifts will be well-positioned to thrive in 2025 and beyond.

“Financial services firms must embrace a holistic risk management framework that addresses immediate threats and anticipates future challenges. A strong risk culture and sound governance are crucial for managing operational risks and ensuring sustainable business models. By fostering a culture of resilience and innovation, firms can turn risks into opportunities for growth.”

Huseyin Sahin, Partner and Lead Prudential Risk Consulting, Forvis Mazars in the UK

[1] Trump tariffs explained: what’s the potential… | Charles Stanley; [2] How tech firms are tackling the risks of quantum computing | World Economic Forum; [3] Digital Operational Resilience Act (DORA) – EIOPA; [4] Global Financial Crime Report | NASDAQ; [5] Engaging with the machine: AI and financial stability − speech by Sarah Breeden | Bank of England; [6] 4 Climate Stories that Will Define 2024 | World Resources Institute; [7] State anti-ESG laws plummet in 2024 amid economic concerns, backlash | S&P Global Market Intelligence; [8] Regulation – EU – 2024/1610 – EN – EUR-Lex; [9] Supervisory priorities 2025-27; [10] Regulatory Initiatives Grid – Interim update | FCA; [11] Sustainability disclosure and labelling regime | FCA