Know-How spotlight: Climate risk, crypto, compliance, and more
Know-How is the go-to learning platform for anyone looking to deepen their knowledge of finance and stay ahead of the curve.
With quarterly updated content written by financial experts, Know-How offers everything you need to stay informed, no matter where you are in your financial career.
In this article, we explain the importance of understanding evolving areas of the industry including climate risk, crypto, compliance, payments, swaps, and more.
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Who is Know-How for?
Whether you’re just starting out or have years of experience, Know-How offers invaluable resources for building your expertise. From foundational topics to the latest trends, Know-How equips you with the knowledge you need to excel as a financial professional.
What makes Know-How stand out?
One of Know-How’s strengths is its content. Here’s what makes it exceptional:
670+ tutorials:
Covering a wide range of financial topics, from the basics to more advanced subjects like AI and ESG.
60+ hours of video:
Engaging, clear, and concise video content that brings complex financial topics to life.
Regular updates:
Every quarter, new tutorials and updates are released, ensuring that the content reflects the latest trends and insights.
Why choose Know-How?
Know-How tutorials are designed to go beyond theory, providing actionable knowledge you can use in your day-to-day work. The platform’s interactive videos, quizzes, and scenarios cater to all learning styles, ensuring everyone can benefit.
Plus, we’ve made accessibility a priority, so everyone can engage with the content, regardless of their learning needs.
When should you use Know-How?
Whether it’s adapting to new regulations, understanding emerging technologies like blockchain, or navigating changes in the industry, Know-How gives you the tools to stay informed.
How does Know-How deliver results?
Know-How is designed with real-world application in mind. The content is structured to help you put what you learn into practice right away, improving your performance and deepening your understanding of key financial concepts. And with a dedicated support team, you’ll always have help when you need it.
Climate risk
Around the world, governments and businesses are grappling with the implications of climate risk due to ongoing climate change and extreme weather events that threaten business operations, livelihoods, infrastructure, human and animal health, and even human lives. The banking industry, like many others, is increasingly recognizing the material impact that climate risk may have on all aspects of its operations. In response, the industry is seeking to integrate climate risk assessment and management into its broader risk management processes.
Know-How learner profile
Know-How’s course provides a broad overview of climate risk for banking professionals involved in risk assessment and the impact of climate-related financial risks on such assessments. The course will also be useful to other financial professionals seeking a general understanding of climate risk and how it is assessed and managed.
Climate change
There is growing recognition that climate change and society’s reactions to it may have significant consequences for the economy and the financial sector. In response to the expectations of civil society and governments, as well as increased awareness of these risks by the financial sector, financial institutions have started analyzing climate-related risks and impacts and incorporating them in their decision-making and product offerings.
To understand climate risk, it is first necessary to understand what is happening to the global climate.
With very few exceptions, climate scientists agree that the emission of greenhouse gases into the atmosphere is warming our planet.
According to the United Nations body for assessing the science related to climate change, the International Panel on Climate Change, human activity has already caused temperatures to rise one degree Celsius above pre-industrial levels.
This has led to an increase in the frequency and severity of extreme weather events such as floods, storms, fires, and droughts.
In addition, rainfall patterns, average temperatures, and other aspects of the climate are changing, which may soon make some areas unsuitable for human habitation or food production.
The changing climate will also impact human and animal health.
These impacts will differ across geographies.
If left unchecked, rising temperatures will further increase the frequency and strength of extreme weather events and exacerbate the damaging effects of changing weather patterns.
In response to these challenges, societies are engaging in climate change mitigation and adaptation efforts.
Climate change mitigation refers to actions taken to reduce or slow down greenhouse gas emissions and/or improve the carbon sinks that sequester these gases, such as forests.
Mitigation can include measures such as shifting to renewable energy, developing sustainable transport, or retrofitting buildings to improve their energy efficiency.
Climate change adaptation refers to actions that improve resilience to climate change and reduce vulnerabilities to changing weather patterns or rising sea levels.
Adaptation measures include protecting shorelines from flooding or developing drought-resistant crops.
By mitigating climate change and adapting our societies to deal with its effects, it is hoped that we can build a sustainable future for all.
Climate risks
Despite global attempts to mitigate the worst impacts of climate change, the world faces a significant and growing range of climate risks.
We can classify climate risk into two categories.
Physical risks
Physical risks result from climate changes – for example, floods, storms, shifting weather patterns, droughts, and so on – that damage physical assets, disrupt supply chains, endanger employee safety, alter demand patterns, and have other material impacts. These risks can be acute – sudden and severe, such as droughts – or chronic – building over the long run, such as rising temperatures. They can impact people, organizations, infrastructure, and entire countries.
Physical risks arise from a failure to tackle climate change.
A powerful example of this occurred in California in 2019. California’s largest utility, Pacific Gas & Electric (PG&E), had to file for bankruptcy after its improperly maintained grid allegedly contributed to record wildfires amid drier-than-usual conditions, leading to USD 30 billion in liabilities. The press dubbed it “the first climate change bankruptcy.” It is unlikely to be the last.
Transition risks
Transition risks arise from the actions taken to mitigate climate change and put the global economy on a low-carbon trajectory.
Transition risks can be classified into four categories:
- Policy & Legal Risk: This category includes increasing regulation, which can change the competitive environment and the burden on companies, and litigation against actors that fail to mitigate their climate change impact or adapt their activities.
- Technology Risk: This category includes the rise of low-carbon innovations that could displace existing technology – electric cars, for example, may replace combustion engine cars, creating challenges for manufacturers, power grids, and consumers.
- Market Risk: This category includes changes in demand patterns and consumer preferences – for example, consumers may switch existing products for greener, low-carbon products, causing some companies to lose revenues.
- Reputation Risk: This category includes the risk that organizations may be judged unfavorably based on their climate change actions, which may damage their ability to attract investment and the appeal of their products.
One famous example of transition risk is the rise of so-called “stranded assets” in the oil and gas industry. Carbon Tracker, a think-tank, found that – to limit global warming to below 2 degrees Celsius – over 80% of existing fossil fuel reserves must not be tapped for energy. If regulations were enacted to achieve this, many oil and gas assets would be “stranded” – they would face sudden and unanticipated devaluations or even conversion to liability status – leading to severely damaged balance sheets for oil and gas companies.
In short, while physical risks arise from not doing anything in the face of increased emissions and climate change, transition risks arise from not anticipating the economic, social, and political changes required to transition a low-carbon world. In this sense, physical and transition risks are two sides of the same coin. The probability of physical risks increases as transition risk decreases, and vice versa.
Digital and crypto assets
Digital assets broadly refer to any valuable content stored electronically, from media files to digital currencies. In financial markets, “digital assets” typically means crypto assets, a fast-growing category supported by blockchain and cryptographic security.
While still dominated by early movers Bitcoin and Ethereum, the digital/crypto asset universe now encompasses a broad range of assets, tools, and service providers, as well as an increasingly sophisticated derivatives market that connects crypto with traditional finance. These innovations have brought rapid change to the regulatory landscape, with an ever-evolving global framework that addresses the risks of an increasingly interconnected asset class. They have also played a part in the central bank initiative to develop central bank digital currencies (CBDCs).
Know-How learner profile
Know-How’s course is designed for anyone with an interest in the digital/crypto asset universe. It is suitable for both new hires and experienced professionals who wish to expand their knowledge of crypto assets as they enter the financial mainstream, as well as understand the basics of cryptography and blockchain technology, which underpin digital assets.
What is DeFi?
Decentralized finance, or DeFi, a new way of transacting in financial markets, has emerged in recent years. Its strongest proponents see it as a revolution that could change the financial system as we know it.
But skeptics say it’s a pipedream, citing challenges they believe are insurmountable.
So, what exactly is DeFi, and why has it garnered so much attention and excitement?
The traditional financial system is centralized and requires intermediaries, such as banks, to facilitate and validate transactions.
DeFi, on the other hand, is powered by blockchain technology. This means it requires no intermediaries or central authority. Instead, transactions are validated through collective agreement among the blockchain’s network of nodes. Blockchains are founded on advanced cryptography and provide the infrastructure for all crypto assets, the best-known of which are Bitcoin and Ethereum. The Bitcoin blockchain operates as a decentralized peer-to-peer digital payment system. DeFi builds on this concept.
If the technology exists to eliminate intermediaries from payments, why not also remove them from other financial services such as:
- Trading
- Asset management, and
- Borrowing and lending currencies and other assets
The Ethereum ecosystem has emerged as the hub of decentralized finance. To understand why, we need to look at its design.
Unlike Bitcoin, which is a payment blockchain, the Ethereum blockchain is primarily a platform for generating smart contracts and decentralized software applications.
A smart contract is a digital contract stored on a blockchain that is automatically executed when predetermined conditions are met and verified.
For example, you could use a smart contract to transfer money from your savings account to a friend when your balance exceeds a certain amount. Since it’s automatic, there’s no need for an intermediary to handle the transfer, and there are no associated time delays or fees. A decentralized software application is an open-source software application that runs on a peer-to-peer blockchain network. These applications allow users to trade crypto assets directly or to lend them out and earn interest. Smart contracts and decentralized apps are the basic units of the DeFi ecosystem. Ether, the native coin of the Ethereum network, is volatile, but DeFi, like any financial system, needs a stable currency to function effectively.
This is where stablecoins come in.
A stablecoin is a type of crypto asset whose value is pegged to another asset, such as a fiat currency or the price of a commodity, or it could be crypto-collateralized, that is, backed by another cryptocurrency. This helps it maintain a stable value, making it a useful means of exchange.
DAI is the most widely used stablecoin in DeFi. It’s pegged to the US dollar but is backed by Ether. DAI must be overcollateralized to address Ether’s inherent volatility. For example, USD 150 worth of Ether might be required to generate USD 100 of DAI.
Global compliance
In today’s global economy, banks and other financial institutions have greatly expanded the scope of their activities as well as the products and services they provide to their clients/customers. As the wider world deals with unprecedented changes and challenges, firms of all sizes are more concerned than ever about compliance risk management and navigating an ever-changing and increasingly complex regulatory environment.
Compliance failures can be very costly, both at an individual and corporate level. They can result in litigation, fines and other financial costs, severe reputational damage, and even imprisonment in the case of the individuals involved. To avoid costly and embarrassing errors, whether unintended or deliberate, it is vital that all employees are up to speed in relation to evolving regulatory requirements and industry practices. Know-How’s course aims to address this need, covering key compliance topics such as:
- Anti-money laundering (AML), including trade-based money laundering, and counter terrorist financing (CTF)
- Sanctions
- Fraud, both internal and external
- Cybercrime
- Conflicts of interest
- Ethics and its inter-relationship with culture and conduct
- Anti-bribery and corruption
- Data protection
- GDPR and how it protects privacy in today’s world
- Modern slavery and associated human rights
Know-How learner profile
Know-How’s course aims to provide all staff – from new and recent recruits to senior management – at banks, asset managers, and other financial firms with an understanding of the key compliance topics in a constantly-evolving global regulatory environment. The course may also be useful for those working in nonfinancial firms but who are subject to similar compliance requirements.
Payments
The payments industry has undergone a massive transformation in recent times, driven by new technologies, changing consumer preferences, and regulatory developments. This has led to an influx of FinTechs and other nonbank operators and given rise to a global “PayTech” industry. With traditional bank incumbents and their business models under pressure from these nonbanks, an exciting but more crowded and complex payments marketplace has emerged.
Key learning areas in the payments sector include:
- The key events in the evolution of money and payments from the early forms of money to the development of a modern-day PayTech industry
- The different types of money, including central bank money (cash and CBDCs) and e-money and how they compare to cryptocurrencies and stablecoins
- The distinction between “pay-by-bank” and “pay-by-card” transactions and the various methods of payment that fall under each
- The role played by digital wallet functionality in transforming the payments industry
- The concept of payments “rails” and identify the different types of rails in operation today
- The key participants in today’s payments value chain, the impact of new players, and their roles in the new payments ecosystem
- The impact of technologies such as cloud computing and APIs on the payments industry
- The role of Swift and messaging standards, notably ISO 20022, in the context of payments
- The continued importance of the different types of payments cards – debit, credit, and prepaid – in the world of payments
- The impact of the EU’s second Payment Services Directive (PSD2) on open banking and the payments industry
Know-How learner profile
Know-How’s series is designed for anyone that is seeking to understand the profound changes that have arisen in the payments industry in recent times. This includes not only staff at traditional retail and commercial banking businesses, but also those working for FinTechs, neobanks, and other firms operating in the growing PayTech sector.
Swaps
Instruments such as interest rate and currency swaps have been a vital component of the global derivatives market since currency swaps were first introduced in the 1970s. As such, understanding swaps, their pricing, and their uses is fundamental for anyone looking to gain an understanding of today’s financial markets.
Know-How learner profile
Know-How’s course provides detailed coverage of all aspects of swaps for newcomers to the field of derivatives or for more experienced personnel who wish to refresh their knowledge.
Sustainability & ESG
Sustainability is perhaps the biggest challenge of our time, and businesses across all sectors are increasingly embracing more sustainable practices. In the financial sector, investors are searching for investment options that go beyond traditional financial and economic concerns to incorporate environmental, social, and governance (ESG) issues. Meanwhile, banks and other lenders must now embed sustainability concerns into their day-to-day decision-making and risk management.
Know-How learner profile
Know-How’s course provides a broad overview of sustainability and ESG for newcomers to the field or for more experienced financial professionals who wish to refresh their knowledge.
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