Proactively managing risk in volatile times

For business leaders, the question is not whether the next disruption will come, but whether your organizations will identify and adjust the risks that it brings, writes Douglas Matheson, chief risk and compliance officer at HSBC Vietnam.

Is it just me, or have black swans events become a regular feature of the global landscape?

The start of the U.S.-China Trade tension in 2019, start of the Covid pandemic in 2020, the 2021 Suez Canal obstruction, the escalation of Russian-Ukraine conflict in 2022, and the U.S. banking crisis in 2023 have all been described as black swans.

Each event disrupted corporates globally, underscoring the growing need for strong risk management and resilience. This year, our latest ‘black swan’ came in April 2025, where reciprocal tariffs for Vietnam were announced at 46%. This is significantly higher than many of our expectations. The Economist put it plainly in their opening to their April 3rd report: “Few expected him to go so far.”

According to the recently published HSBC Global Trade Pulse Survey, even though the final level and timeline of tariffs are unclear, businesses have started to feel the pain. 80% of Vietnamese respondents experienced cost increases. 75% expect this increase to last into the medium term. Many respondents are considering changes in focus for target markets and enhancing data analytics in response to uncertainty. 76% optimistic respondents see it in a positive light – they see that tariffs encourage evolution and innovation to build future resilience.

The Corporate Finance Institute defines a black swan as “an extremely negative event or occurrence that is impossibly difficult to predict.” While traditionally considered rare, recent “black swans” appear almost predictable in a volatile world. For globally engaged firms, this reality demands a new lens for understanding and managing risks.

While there may be many risks and areas of attention are specific to your business, I highlight three examples of how companies may look to build resilience and adaptivity into their operations: counterparty credit risk in trade; foreign exchange volatility; and governance and internal controls.

Counterparty risk

As supply chains have become more globalised, they have also become more vulnerable. A single weak link - be it a supplier facing financial stress, a logistics partner caught in regulatory limbo, or a buyer delaying payment - can have a material impact to your business operations.

With the increasingly volatile world, we may see an increase in disputes over international trade. Counterparty credit risk should be embedded across functions - finance, strategy, sales - not confined to back office processes. Companies should consider portfolio level oversight: how do you assess counterparty risk, do you consider jurisdictions of buyers, what are the additional risks that come with longer trade terms, and do you monitor concentration between both counterparties and countries.

Enter incoterms, the standardized trade terms developed by the International Chamber of Commerce (ICC). These rules determine the allocation of risk and responsibilities between buyers and sellers, such as who pays for freight, who bears the risk of loss or damage, and who handles customs clearance.

While often treated as boilerplate, incoterms can become critical tools for risk management. Choosing between FOB (Free on Board) or CIF (Cost, Insurance, and Freight), for instance, can shift the balance of responsibility for shipping risks and insurance coverage, providing some insulation towards the immediate impact of tariffs.

Banks can play a role in supporting your sales growth, without materially increasing counterparty risk. For example, rediscovering traditional trade tools such as letters of credit or avalized bills, can significantly reduce the risk of non-payment for exporters by transferring risk to a more stable international bank.

This insulates your business in case your counterparties suffer impact to their cash flow from global trade readjustment. By discussing with your bank regarding trade finance, you may discover useful risk mitigation tools that may also unlock working capital.

Foreign exchange exposure

If counterparty risk is a slow burn, foreign exchange risk can be more like an earthquake: sudden, jarring, and potentially devastating. Movements in currency rates can erode margins and distort forecasts, even in currencies that appear stable.

In 2022, the Japanese yen plunged to a 38-year low against the U.S. dollar, falling more than 25% in a matter of months as the Bank of Japan held firm on ultra-loose monetary policy while the Federal Reserve aggressively raised rates. Even the relatively stable Chinese yuan depreciated in April 2025 to the lowest level since 2023.

These moves aren’t just academic. Without a natural hedge between revenue and cost of goods currencies, FX movement can create sharp and unexpected swings in profitability. For companies with thin margins or long contract cycles, such volatility can mean the difference between profit and loss.

Despite this, many firms remain under-hedged. In the 2024 HSBC Corporate Risk Management Survey, 47% of treasurers said their organisations were unprepared for foreign exchange risk, ranking higher than supply chain (35%) or climate risk (34%) as top risks. Over 40% of respondents experienced lower earnings due to unhedged FX risk.

The toolkit for managing FX risk is well-established, but often overlooked. Forwards - contracts that lock in a future exchange rate - are the most common hedging instrument, locking in the rate at the point of sale, regardless of payment terms. Key is for CFOs to consider their overall FX strategy. While some individual hedges may appear costly in hindsight, a disciplined FX strategy focused on margin stability instead of predicting the market may be more resilient over time.

Governance: The perils within

While much attention is paid to external shocks, some of the gravest risks originate from within. Governance failures- ranging from outright fraud to operational errors - can cripple a business faster than any market downturn.

The recent implosion of a fintech company, with a multi-billion valuation provides an extreme example. Internal investigations revealed a pattern of overstated revenues, backdated contracts, and poor controls. In cases like these, investors are left nursing heavy losses.

Yet governance is often treated as a compliance exercise rather than a strategic imperative. At its core, governance risk is about the integrity and robustness of decision-making structures and ensuring that critical thinking combined with controls and processes allows a business to be robust. Internal controls - segregation of duties, dual approvals, and audit trails - are vital.

Culture matters. Critical thinking is important at all levels. As organizations become more data-driven, there’s a temptation to defer to dashboards and metrics. But algorithms can miss what intuition and experience detect. In his book “The Checklist”, Atul Gawande highlighted that in professions from engineering to aviation, the use of checklists as a structure can build discipline but need to allow experts to adapt and react to circumstances.

Employees should be encouraged to speak up, question inconsistencies, and raise concerns without fear of reprisal. A well-written whistleblower policy is meaningless if the corporate tone discourages dissent. If concerns are raised that are ultimately false alarms, that culture should be celebrated.

Diversity of experience or background, whether in management or boards, can provide valuable challenge and suggestions. Rotation of key control personnel, regular scenario testing, and robust independent audit helps to maintain a mature risk culture.

Ultimately, governance risk is the foundation upon which all other risk management rests. With a strong governance system in place, credits and investors will be more confident, especially in times of stress. Without it, even the best risk systems will crumble under pressure.

Conclusion: From prediction to preparedness

In today’s world, volatility is no longer the outlier - it is the baseline. Political dynamics, climate events, technological disruptions, cyber attacks and economic fragmentation are unlikely to subside. For business leaders, the question is not whether the next disruption will come, but whether your organizations will identify and adjust the risks that it brings.

This demands a shift in mindset. Risk management must move from being reactive and siloed to being proactive and integrated. Potential risks and the capacity to meet them should be a point of discussion at all levels of the organization. Innovation should be encouraged, while recognizing unintended additional risks.

Ultimately, organisations with strong risk cultures that recognize we need to live alongside future black swans will outperform peers over the long run in navigating shocks. Is your organization prepared to not just survive - but to lead - through the next disruption?