The Morning Risk Report: Risk Professionals Take On Emergent AI, Climate Change and Global Conflict

Good morning. Generative artificial intelligence, geopolitical tension, punishing climate events—the list of headaches for businesses’ risk managers can seem to be in a perpetual state of growth.

Experts see a deteriorating risk landscape, with most reporting a negative outlook that is expected to worsen over the next decade, according to the World Economic Forum’s Global Risks Report 2024.

The problems, though vexing, aren’t intractable. About 10,000 risk managers and experts met this week in San Diego for the annual Riskworld conference put on by trade association RIMS to discuss the industry’s most pressing issues.

Risk & Compliance Journal’s Richard Vanderford caught up with some top experts to learn what they are advising businesses. 

Artificial intelligence: “Our CEO once joked, ‘There was a day where the wheel was an emerging risk.’  There are unique risks that gen AI causes and represents, but there are so many benefits that it’s not going away. Organizations need to manage that.”
—Lauren Finnis, head of commercial lines insurance consulting and technology for North America at insurance broker WTW

Geopolitics:  “We saw how vulnerable supply chains can be to a shock. That is causing companies to rethink that and to make them more resilient and less dependent on China.”
—Adrian Cox, chief executive for specialty insurer and reinsurer Beazley

Climate change: “Organizations are looking to build their sustainability strategies…They realize that they can’t insure their way out of some of this risk.”
—Jessica Waters, manager of climate and structural resilience at commercial insurer FM Global

Binance ignored evidence of dubious trades, ex-insiders say 

When the U.S. accused Binance last year of maximizing profits over protecting users, the company promised “unceasing efforts to deliver a safe and trusted platform.”

What happened? This was put to the test soon after when an internal investigation found a top client—a firm run by a Lamborghini-loving crypto trader—was manipulating markets. The result: Binance kept the client and fired its investigator.

FDIC chairman’s future hinges on high-stakes hearings.

Martin Gruenberg is again auditioning for his role as head of the Federal Deposit Insurance Corp., a little over a year after Senate lawmakers confirmed him to be one of the nation’s top banking regulators.

A pair of hearings before House and Senate lawmakers, previously scheduled for next week, could decide Gruenberg’s fate as chairman of the FDIC. They follow the release Tuesday of a scathing report outlining sexual harassment and other misconduct at the regulator as well as incidents of volatile behavior by Gruenberg, and questioning his ability to fix the agency’s culture.

• Canada’s financial crime watchdog levied a fine equivalent to $4.4 million against Binance for compliance failings, according to MarketWatch. 
   
• Conservative groups are increasingly asking company shareholders to scrutinize LGBTQ-themed marketing and public relations campaigns, hoping to open another avenue of pressure on businesses’ social positions.
   
• A former New York City assistant district attorney and his husband are suing the city, saying it discriminates against gay men by not covering in vitro fertilization for them.
   
• Norfolk Southern’s shareholders on Thursday voted against an activist investor’s proposal to unseat Alan Shaw as CEO.
   
• A group of shareholders called on Barclays to pull back its support for fracking in North America and expand its climate commitments, according to WSJ Pro Sustainable Business.

China’s trade with Europe sinks as Xi seeks to rebuild ties.

In Europe this week, Chinese leader Xi Jinping sought to persuade leaders not to follow the U.S. in restricting imports of electric vehicles and other high-tech Chinese products. New figures highlighted the urgency of his task.

The numbers. China’s exports to the European Union and the U.S. dropped in the four months through April compared with a year earlier, even as China’s exports overall rose 1.5%.

• Finance chiefs began the year expecting the Federal Reserve would cut interest rates, with some anticipating a trim as early as March. Instead, CFOs are reworking their plans and settling in for rates to remain airborne for a while.
   
• President Biden’s threat to withhold some weapons deliveries to Israel set up a high-stakes showdown with Prime Minister Benjamin Netanyahu and raised alarms in the country about a rupture in relations with its most important international supporter.

• Geopolitics has moved to a central role in supply-chain planning as international confrontations roil trade and transportation.
• Once viewed as a near-total loss, FTX plans to fully repay its swindled customers as the defunct crypto exchange’s assets have rebounded since its 2022 bankruptcy filing.
• Whistleblower programs seeking tips that lead to enforcement actions are gaining momentum in the U.S. and abroad.
• 🎧 Listen to WeightWatchers CEO Sima Sistani discuss how her company plans to return to profitability as the rise of weight-control drugs challenges the diet and exercise program business model.

• T-Mobile US and Verizon Communications are in discussions to carve up U.S. Cellular.
   
• Donald Trump’s lawyer on Thursday sought to portray porn star Stormy Daniels as a fabulist who speaks to ghosts and a hustler who had made millions off her years-old story of sex with the former president.
   
• Martha Pollack, the president of Cornell University for seven years, announced Thursday she would resign on June 30. Her departure marks the third female Ivy League president to depart in the past six months.
   
• Artificial intelligence has fueled a stock-market boom and boosted hopes of a step-up in productivity. But the technology also drew skepticism at a Wall Street Journal CEO Council Summit on Thursday—about its ability to transform industries, as well as the dangers it will pose.
   
• Since drugs such as Mounjaro, Wegovy and Ozempic became sensations last year, Wall Street has rushed to work out just how disruptive the drugs, called GLP-1s, might be.