Risk appetite

But if you can identify the risk and then control it to a level that's acceptable within the organization, then you should be very productive.

Something you said caught my attention because I love the idea of risk appetite and how much risk an organization is willing to take on.

When you're helping to assess that as a new partner working with companies, are there any tips or tricks that you do to assess that? Because what I find is the stated preference of like, hey I have the appetite to take on this much or I want to transfer this risk I don't want it is not usually the same as how things are done in practice and like figuring out what the real appetite is seems kind of challenging so I'm curious if you've had any real breakthroughs and like hey this is how you find out what the real appetite for this risk is

I think, honestly, you find that in your recommendations, what gets implemented and what doesn't get implemented, right? Because that's really where the rubber hits the pavement in the aspect, you know what they're going to do.

That typically translates into double-digit equity returns.

So it's sort of like what's your risk tolerance? Do you want to have a higher return with some more volatility or do you want something safe that's pretty consistent? So that's, I think, more of a risk appetite issue in terms of who the investor is.

Yeah, it's that FOMO, isn't it, in this market right now? Well, that's part of it too, right?

And that's interesting because if you sort of look last week, for example, the amount of money that was piling into the semiconductor stocks, the triple lever GTF for semiconductors, huge inflows.

So in your opinion, what does the right first move actually look like? Like how the leaders who are following this episode right now will help their organization to build a governance foundation before even shopping for a single AI tool.

When you first start deploying AI systems, an organization needs to understand what its risk appetite is for doing that.

For example, if you're running a marketing agency, and you're primarily creating publicly facing content for your customers using AI tools, your risk appetite might be a little bit higher than other companies because the risks of creating content that's inaccurate, they exist.

They're certainly there and shouldn't be ignored.

But the impact of that risk materializing might be less severe than a highly regulated industry.

You need to comply with things like the HIPAA security rule.

You probably have restrictions in place on you from your customers if you're a B2B company.

So understanding your risk appetite at the outset of AI deployment is really critical to making informed and practical decisions.

in the territory and I think many Gavin and I would both say I think having worked on things like outcome based that although that's incredibly difficult to do it does improve the conversation you know the fact that the regulator writes about what it's trying to achieve and the means by which it's trying to do that and indeed some of the measures although they may be flawed all I think all of that is you know it all adds to a richer debate I think than than just simply you know ignoring these trade-offs

Yeah, this is what you refer to in the book as the regulators' risk appetite.

Yeah.

And that pushback from Rati is really pushing back on the Treasury trying to impose this risk appetite on them.

Although I have to say, I don't know, maybe we could talk about it right now, is their risk appetite for crypto...

I don't know.

I mean, on the one hand, I think they have a very measured and good approach to crypto.

But on the other hand, I don't know.

Remember when Dick's got killed? Any time there is a stock that falls 20% in a day, 40% in five days, people are just on it like a fly on shit.

I don't think people in the market have totally reckoned with the fact that risk appetite in this decade is completely different than it was last decade.

We, the t- pandemic flipped a switch in people's brains, and, like, the appetite for risk is com- is totally different.

And it's funny because, uh, Maggie Mahar has this book called Bull.

I don't think a crash, if we get one, is going to turn people away.

I totally agree.

I, I don't think that you can turn that risk appetite off immediately.

And I also have another idea on the crash thing.

Your point is a really good one as well, which is, you know, are

businesses actually, is it regulation or are they being too cautious on this as well? And I think we saw some of that in our consultations as well, where there's not just the story about what are the regulations, there's also the story about risk appetite.

And when you're in an environment where regulations, even if they haven't yet increased, but they could increase, and people are a little unclear on how this works, you see the effect of that regulation, even though it doesn't exist yet, taking an effect.

So a practical example is we use a lot of data and we buy data from a lot of different providers and there are a number of providers who have stopped supplying data for research projects even though it's completely anonymized and it complies with the abs's own rules they will stop supplying that data because they fear that they might get caught up in just a social sort of scandal around sort of privacy or later on there'll be regulations around privacy that make it very hard for them to then use that data for what they're doing.

So I think it can be both regulation on paper, but also just the uncertainty, I think is also really reducing risk appetite across the economy as well.

Do you have a view on what boards should be asking management about some of these issues? How can a board tell if compliance activity is actually protecting the organization and its stakeholders, or if that compliance activity is maybe unnecessarily complex or resource intensive?

Yeah, I mean, our report gives at least industries a bit of an idea of who should be thinking about this.

But did it really break clear? Or is the move still trapped inside a range?

Brent crude rose 4.91% while the S&P 500 fell 1.95%, a curious split between London's commodity support and Wall Street's softer risk appetite.

Cable strengthened 0.74%.

Gold slipped 0.83%.

The same day, a major UK bank is scheduled to report third quarter results.

We are not making a company call here.

Structurally, bank results can influence the financial part of the index, while US labor data feeds into the wider interest rate and risk appetite backdrop.

That combination could make Thursday busier than the light Monday suggests.

Consult a healthcare professional if symptoms persist.

Risk appetite being something that makes someone a founder or not.

I think there's just so many different kinds of founders for so many different kinds of businesses.

I don't think there's, like, one specific template.

In fact, it's, like, very, very diverse.

But if I were to pick one thing, it's risk appetite.

But also sometimes that can be overcome with this person's innate desire to grow.

Even if they have, like, less of a risk appetite, if their willingness to grow is strong enough, then they might overcome it too.

And so I find that it's kind of like when the parents are away.

Sometimes the market can go and risk appetite starts to go and boil over a little bit.

We're seeing that today in pockets today.

So I'm Think that we're probably positioning and getting ready for these bigger events that are really hopefully going to go and shake things up and give us some direction.