Five Real Risks We Face Tomorrow

Good afternoon and thank you for the invitation to speak here uh today. The theme this week is engineering the capital network. Abu Dhabi through ADGM is now one of the key connection points in that network. A place where global banks, asset managers, private capital, and digital asset firms book and manage capital for clients around the world. I had the privilege of being the architect of ADGM's legal and regulatory framework.

ADGM's success proves something often underestimated in finance, the power of law and regulation. Many in our industry think their success is entirely due to themselves. In reality, it depends heavily on the system they sit inside. The legal architecture, the rules, the supervision, and the courts that make their activities possible. What matters is that this system is clear and predictable and predictably operated, grounded in careful reasoning and precise language applied objectively so firms can get on with their business without the constant fear of arbitrary or unexpected intervention.

How that framework is conceived and how it actually runs day-to-day is critical. It's also vital that this system manages the risks of the financial regime that it over oversees. And in today's capital network, that means coordinating with other major centers where capital and financial risk are traded. The essential disciplines of regulation need to be constantly applied and refined. Let me sketch out very briefly five practical risks that the markets face today and then turn to how ADGM might apply its principles to respond.

First, fragile hubs on shared infrastructure. We still talk about financial centers as if they were separate. ADGM versus DICC, London versus New York, but underneath many rely on the same market participants. cloud providers, cyber security vendors and utilities. Last summer's global IT outage triggered by a defective uh software update for Cloud Strike made that vivid.

In a few hours, critical services across multiple continents were affected. Not because they were all they all made the same mistake, but because they all relied on the same component. I've seen the same pattern in cloud outsourcing where a major bank was initially offered a standard corporate contract with no meaningful audit or step-in rights until months after months of negotiation and pressure. It was possible to force the provider to recognize that this was a critical regulated service. Second, the hyperconnected consumer.

ADGM is largely wholesale and Darham retail banking is overseen on shore but the balance sheets and funds booked here ultimately represent people's money somewhere pensioners policy holders savers reported fraud and scam losses in major jurisdiction uh jurisdictions are still small relative to total flows but they already run into tens of billions of dollars a year that shows how quickly trust at the edge edge could be damaged if today's highly connected systems were to go wrong. And how easily new digital asset and tokenized finance structures could be swept up in that loss of trust if they're not designed with the end investor in mind. Third, the cyber crime economy. Cyber enabled crime is now an industry with a division of labor. Some gain access, some steal data, some run scams, some launder the proceeds.

For a hub like ADGM, the same connectivity that attracts legitimate capital also makes you attractive as an on and offramp for illicit flows, particularly in digital assets. The danger is a steady accumulation of opaque structures and dirty money that over time undermines confidence in the jurisdiction. Fourth, the human element at the core of institutions. Here credit Swiss is a useful public case. Its own report into the Archeos collapse described a fundamental failure of management and controls.

Senior people saw reports showing highly concentrated fast growing exposures and yet they didn't act decisively. And then in the green affair's leadership was warned repeatedly about weaknesses in due diligence but they still allowed large plant exposures to accumulate and continue. Those were not really failures of data. They were failures of judgment and common sense. Finally, flying blind.

In finance, we're good at producing beautiful risk risk metrics, sophisticated models, and thick policy manuals, much less good at asking whether they still describe the world we're actually in. It's easy to be blinded by science, to generate numbers and dashboards that look impressive but have only a loose connection with behaviors and outcomes. When that happens, legal and regulatory frameworks stop learning and small problems can grow into systemic ones in plain sight. Nobody is so smart that they're clever than anyone else as we saw with the collapse of LTCM uh on the basis of a model designed by a Nobel Prize winner who invented the black trolls theory. There isn't anyone as bright as that.

Uh uh and they weren't uh themselves. So what do we do with the overall risk picture? Here I come to the empirical method of law and regulation which is already built into IDGM's DNA. By empirical method, I don't mean the worship of data. I mean a disciplined, factual, common sense way of thinking.

Start with a clear description of what's actually happening, how the market really works, where the money really flows, what people really do. Be explicit about the assumptions built into your rules, models, and business plans. what has to be true for this to be safe and then gather the data that actually tests those assumptions and be ready to change course when reality disproves them. And then periodically have someone independent check the data and the models to make sure you're not being presented with rubbish. The same method applies whether we're talking about shared infrastructure, end investor trust, the cyber crime economy or governance in the boardroom.

In each case, the task is the same. Make the structure visible. Be honest about the bets people are making and where they're making them, and adjust when the evidence tells you that they're wrong. That's how a legal and regulatory system learns. And it's how ADGM has approached its own development with clear objectives, familiar but carefully adapted rules, and a willingness to adjust as the evidence accumulates.

So, let me end with this. ATGM has achieved striking growth in a short time. I'm proud to have helped design its legal and regulatory architecture. But the real source of resilience and prosperity here will never be any single individual or institution. It will be the quality of the overall system, the law, the rules, the supervision, the courts, and the way they respond to evidence.

If we insist on facts, if we apply common sense and trust in our ability to apply common sense, and if we're ruthless about identifying and testing our assumptions, then the risks I have described are not reasons for pessimism. They're simply problems we haven't yet fully grasped. And this is exactly the kind of place here that can do that work. Thank you.