Impact on private financial institutions’ risk management Counterparty risk Financial institutions (FIs) could have fewer options for risk-sharing, capital sourcing and transacting, increasing overall counterparty risk Credit risk Investors and ratings agencies may re-evaluate debt profiles across various jurisdictions and blocs, impacting the credit risk of corporates and governments Currency risk The rise of competing international reserve currencies might increase currency instability Investment execution risk Restrictions on capital flows, listings and cross-border asset ownership, as well as the risk of government seizures, forced sales and reduced market discipline, could affect investors’ ability to execute investment strategies and realize returns Liquidity and solvency risk To safeguard against shocks, FIs might hold larger reserves on their books to manage liquidity and solvency risks Market access risk/opportunity costs Economic sanctions and/or other measures could prohibit investors and companies from entering certain markets Regulatory requirements Geopolitical volatility could force governments to impose further capital, liquidity or stress-testing requirements Reputational risk FIs and corporates with exposure to non-aligned countries and blocs, or even non-cooperative firms and sectors, could see reputational risks with the public and their governments Risk management Fragmentation may incentivize FIs to focus domestically or within aligned blocs, limiting their ability or desire to manage risk through diversification Valuation risk Geopolitical pressure may weaken investor appetite, thereby limiting deal opportunities, reducing liquidity, causing asset-stranding and increasing valuation volatilityThe potential costs and risks for firms of a more fragmented financial future TABLE 2 Source: World Economic Forum and Oliver Wyman Table 2 outlines the key risks and costs of a fragmented global financial system for financial institutions as well as how they might significantly affect an institution’s strategic planning, operational efficiency and overall competitiveness. These challenges necessitate careful consideration and strategic adaptation to navigate the evolving financial landscape. Navigating Global Financial System Fragmentation 23

Navigating Global Financial System Fragmentation 2025