The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

This blog is a collaboration between Adam Jenkinson, Griffin Fagan and Nicolas Zigrand at Avantage Reply.

For executives, the question is no longer whether geopolitics will affect operations, but whether their firms are prepared to act before losses become unavoidable. Executives should have a clear understanding of geopolitical risk and know how to manoeuvre through it.

Geopolitics as a rising risk

We define geopolitical risk as the range of risks affecting companies that arise from geopolitical tensions, conflicts, and broader global political developments. This risk has typically been viewed as an exogenous tail, but as the following will exemplify, these geopolitical frictions are becoming increasingly prevalent. The Geopolitical Risk Index, published by the US Federal Reserve, shows a clear climb since 2014 with a sharp incline in 2022. According to the UCDP (Uppsala Conflict Data Program), 2025 marked the highest recorded conflicts between states since WWII with a total of 65 wars, whilst the SIPRI (Stockholm International Peace Research Institute) highlights the ten straight years of increases in world military expenditure. However, the issue is not solely that more events are happening, but rather that our frameworks are not inherently prepared for geopolitics within our operating environment. Risks now transmit quicker than ever, forcing urgent and potentially irreversible management decisions.

Based on this concern, listed below are three core areas that we believe executives should act upon:

1.    The ongoing regulatory divergence
With risks rising, managing diverging regulatory standards must be prioritised to ease operation and compliance across jurisdictions. For instance, consider capital rules - the EU’s CRR3/CRD6 has been live since January 1, 2025, while implementation of the PRA Basel 3.1 is set for January 1, 2027 – two years behind. The US’ timeline is uncertain, with potential for materially different scope and calibration. These divergences complicate capital allocation, booking strategy, and pricing decisions. Regarding digital assets, firms face parallel workstreams, each requiring distinct legal entity structures, while data localisation and sovereignty expectations are tightening across jurisdictions.
Firms should expect more divergence. They need platforms that can run multiple capital, data and regulatory regimes in parallel, alongside regular reviews of booking models, offshoring assumptions and third-party dependencies through a geopolitical lens.

2.    Rethinking scenario analysis procedures
Just as firms must build platforms to strengthen operational resilience, they must also seek to reframe their scenario analysis. Oil and gas companies have managed geopolitical risk for decades and operating long-term assets in politically volatile places. Following Russia’s invasion of Ukraine in 2022, BP exited its 19.75% Rosneft stake within days of the invasion, crystallising a $25.5bn charge in one quarter. By contrast, Raiffeisen remains trapped in Russia years later, with the ECB pushing for a roughly 65% loan-book reduction and profits stuck locally. Together, these companies emphasise the importance of a rehearsed exit reflex – and we can learn from them by “upgrading our toolkits” regarding cross-border stress test scenarios:

• Firms must move from theory to practice through stress testing and wind down analysis by starting from the unacceptable outcome and working back.
• Geopolitical risk must be placed within the Risk Appetite Framework as a named indicator with triggers, where boards predetermine appetite and limits. These should be back tested against prior cases.
• A standing scenario library must be implemented to order scenarios by priority and refreshed annually with materiality filters based on geo-sectoral composition.
• A revised risk taxonomy should be developed to explicitly include geopolitical risk and map how geopolitical events transmit into traditional financial or non-financial risk types.

3.    Board preparation
The frameworks outlined above are only as effective as the board's ability to act on them decisively. This requires boards to move from passive oversight to active preparedness. Below are some actionable points to consider:

• Boards must prioritise constructing frameworks that can not only see a shock coming, but also act before loss is locked in.
• Boards need to focus on revising the risk taxonomy so geopolitical risk is explicitly named, with clear transmission channels into credit, market, liquidity, operational resilience, third party, governance and capital risk.
• Boards must ensure that measuring geopolitical risk goes beyond financial metrics and encompasses indicators such as the geopolitical risk index and stability indicators such as gold.
   

Conclusion
Geopolitical risk is now a core executive concern, necessitating regulatory planning and scenario analysis. To protect capital and operational continuity, organisations must move early, be decisive, and build resilience before geopolitical shocks develop into irreversible losses.