Non-Traditional Risks in Canadian Financial Services

Introduction

Accounting for nearly 8% of national annual GDP, the Canadian financial services sector is crucial to the country’s economy, spanning banking, insurance, investment, and other related activities.

Where risk management once hinged on credit, market, and liquidity exposures, the post-pandemic global environment has thrust non-traditional risks into the spotlight. Cyber threats, climate shocks, geopolitical volatility, pandemics, rapid technological innovation, and talent risks now pose systemic challenges that have grown in significance. This is due to the increasing complexity and speed of business operations taking place, and the interconnected vulnerabilities created as a result.

Defining Non-Traditional Risks

Non-traditional risks are threats that extend beyond conventional financial exposures. They are frequently systemic, unpredictable, and complex. Unlike conventional risks, which are traditionally tracked and managed with established models, non-traditional risks are more ambiguous, highly interconnected, and hard to quantify.

Risk Challenges

Impact on the Canadian Financial Sector

Over the past decade, non-traditional risks have proliferated and now pose material threats to operational and financial stability. External forces increasingly reshape the risk landscape for financial services.

Recent surveys of domestic and global CROs consistently identify the following threats as most critical:

Cybersecurity and cyber threats

AI adoption and data analytics

Climate change and environmental risks

This report explores the rising impact of non-traditional risks on Canada’s financial services sector and outlines strategies for resilience.

Having participated in a board candidate selection process with Massey Henry — and drawing on my global risk management experience — it is evident that financial services organizations are evolving their approach to risk management. Leaders are moving beyond traditional frameworks to address cybersecurity, sustainability, and emerging geopolitical risks with greater urgency and precision.

As explored in this report, today’s risk landscape demands not only technical expertise, but strategic foresight, resilient leadership, and adaptive talent strategies.

Daniel Moore

Board Director, Export Development Canada , Former CRO, Scotiabank

Discover the rising impact of non-traditional risks on Canada’s financial services sector and strategies for resilience.

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AI Adoption and Data Analytics

Impacts and risks

AI and advanced analytics present both significant opportunities and risks for financial services organizations.

Poorly trained, inadequately tested, or improperly developed AI models can yield inaccurate results, leading to flawed financial decisions or mispriced risks.

AI technology can also introduce black box complexities, making it difficult to understand or explain outcomes, undermining decision-making, compliance, and the financial integrity of the enterprise.

Defining black box complexities

Black box AI is a system where the internal decision-making modeling process is unclear and difficult to understand, even for the developers. This lack of transparency makes it hard to understand outputs and increases the risk of concealing cybersecurity vulnerabilities and other unintended problems.

Another key challenge is ensuring the effective oversight of data collection and analytics processes.

Financial institutions rely on large amounts of customer and transactional data. Weak data analytics practices and low data literacy among staff can lead to the misuse or misinterpretation of data. This, in turn, raises the risk of privacy breaches, regulatory violations, and reputational harm.

Talent Strategies

Financial institutions should enhance training programs to address data literacy gaps. Future recruitment and hiring efforts must also focus on data literacy skills and develop those skills further throughout employees’ careers.

of executives anticipated AI and digital transformation would have the biggest impact on their organizations for the year ahead.

SOURCE: Massey Henry Executive Talent Survey 2025

Cybersecurity & Cyber Threats

Dual jurisdiction pressures

Cyber risk is among the most urgent non-traditional risks confronting Canadian financial institutions.

Financial firms are prime targets because of the sensitive client data and the high-value transactions they process.

Ransomware, data breaches, and credential-phishing schemes jeopardize individual institutions and the integrity of the broader financial system.

A major breach can lead to significant economic losses or erosion of customer trust and broader financial consequences — outcomes already observed in past global banking incidents.

of risk professionals consider cyber incidents as a high or major threat to their organizations.

Among the top risks to the Canadian financial system over the next five years, cyber risk was ranked as the most significant concern overall.

SOURCE: Global Risk Institute’s Annual Risk Outlook Survey 2025

Geopolitical and Geoeconomics Risks

Geopolitical tensions and trade disputes can undermine the stability of the financial system.

For Canada, which has deep trade ties to the U.S. and China, geopolitical risks will challenge existing operational and investment strategies.

Furthermore, in the coming years, international tax and regulatory policy initiatives will influence Canadian financial institutions operating abroad. Global macroeconomic risks can materialize and escalate quickly, making them unpredictable and often resulting in complex second- and third-order effects.

These dynamics require financial institutions to recruit and cultivate talent versed in international politics, trade, and economics. While many organizations have historically relied on external specialists to enhance their internal capabilities, that reliance is likely to diminish.

of executives indicate a greater emphasis on leadership agility and crisis preparedness amid recent geopolitical and economic shifts.

SOURCE: Massey Henry Executive Talent Survey 2025

Climate Change and Environmental Risks

Climate-related risks — both physical and transitional — are now recognized as threats to financial and operational stability.

Physical hazards such as damage from natural disasters, including floods, wildfires, or storms, erode asset values and drive higher insurance claims.

Transitional risks arise as economies shift to low-carbon models. Changes in U.S. climate policy, for example, complicate the move away from fossil fuels. Canadian regions rich in natural resources and exposed to climate events face heightened vulnerability, impacting financial institution lending and insurance activities.

Currently, there is a global divide on the issue of climate policy. These uncertainties will make it increasingly difficult for financial services leaders to determine suitable policy and investment strategies to manage this complex risk.

Addressing Non-Traditional Risks

Strategies for risk management

To manage non-traditional risks effectively, CROs and their teams must ensure that risk management personnel, processes, and technology solutions are aligned with business strategy and evolving external threats.

Alignment requires verifying that adequate operational budgets and technology acquisition funding are both allocated and fully committed.

Achieving this alignment also depends on collaboration across the organization, with industry peers and regulators.

The following priorities are the key to addressing non-traditional risks:

Investing in technology and cybersecurity

Employing advanced cybersecurity measures, threat detection systems, and incident-response capabilities.

Enhancing risk governance and culture

Integrating non-traditional risk factors into enterprise risk management frameworks and promoting an organizational culture that values resilience.

Building operational resilience

Developing and maintain contingency plans and business-continuity strategies for various non-traditional scenarios, including pandemics and climate events.

Engaging stakeholders

Participating in industry-wide initiatives and public-private partnerships to share information, develop best practices, and enhance overall resilience of the financial services industry.

Looking Ahead

Non-traditional risks are reshaping the landscape of Canada’s financial services sector, challenging institutions to evolve beyond conventional risk frameworks.

As cyber, climate, geopolitical, and technology-driven threats intensify, organizations must adopt proactive, integrated, and forward-looking approaches to resilience.

Integrating non-traditional risk factors into enterprise frameworks will best position organizations to safeguard stakeholders, ensure sustainable growth, and maintain confidence in Canada’s financial system.

Key takeaways:

Rising complexity

Non-traditional risks are increasingly interconnected, creating systemic challenges for financial institutions.

Strategic alignment

Effective mitigation requires aligning risk management capabilities, budgets, and technology investments with overall business strategy and long-term resilience goals.

Collaborative action

Cross-sector collaboration, including partnerships among regulators, industry peers, and public institutions, is essential for sharing insights and strengthening stability.

Cultural transformation

Building a risk-aware culture — supported by strong governance, continuous learning, and data literacy — is critical to navigating ambiguity and fostering trust.

About Massey Henry

Executive Search, Coaching, Assessment, and Advisory Services

Ranked among Canada’s Top Growing Companies by The Globe and Mail, Massey Henry is one of North America’s leading executive search and board advisory firms focused exclusively on the financial services sector. With an experienced team of industry leaders and executive recruitment specialists, the firm combines innovation with sector expertise to provide clients with full-scope talent assessment, coaching, succession planning, and executive search services.

Michael Henry

Managing Partner, Massey Henry

John Sanders

Senior Partner, Board & CEO Services

Lisa Newey

Partner

Rachel Liem-Smith

Principal

The Emergence of Non-Financial Risk in Canada’s Financial Services Sector