FSA warns that “relatively stability” of global economy likely to end

The U.K.’s Financial Services Authority (FSA) noted in its Financial Risk Outlook (FRO) that mounting risks will likely upset the relatively stable global economy, prompting firms to perform stress tests now, rather than waiting for disaster to strike.While the FSA’s overall outlook for the global economy continues to be benign, the FRO identifies an increasing risk that it will become more unsettled.”Key factors include the increasing geopolitical risks, which escalate the probability of an ‘event risk’ materialising,” according to an FSA release.The report also points to increasingly complex financial markets and the combination of low volatility of asset prices, a low market pricing of risk and stronger correlations between the prices of different classes of asset.”These trends mean that the impact of a shock to the financial system would be much greater now than two or three years ago,” said the FSA statement.Callum McCarthy, chairman of the FSA, encourages firms to consider the risks outlined in the FRO and to plan accordingly.”Stress testing and scenario analysis enable firms to assess and mitigate the risks that face them,” he said.”It is important that firms use this period of relative stability to identify risks that could arise in less benign times.”