Static Risk Appetite Frameworks Are Dead, Long Live Scenario Simulation

The latest report from balance sheet management technology providers FIS has revealed that static, annual risk-appetite frameworks are no longer viable in a world where volatility is the baseline and risks are tightly interconnected.

At the heart of the findings in the report, The State of Systemic Risk: How Financial Institutions are Reframing the Threat Landscape (September 2025), which FIS commissioned CeFPro to deliver, is execution.

Nearly half of institutions (48%) are actively reviewing and updating their Risk Appetite Statements, and another 18% are considering changes. In parallel, 62% are already investing in simulation and scenario analysis, while 24% are exploring solutions - meaning 86% recognize their current capabilities need to improve.

FIS – whose Balance Sheet Management platform integrates capital, liquidity and earnings modeling on modern cloud infrastructure – argues that this growth in awareness around execution marks a structural shift in which the broad approach is moving from regulatory box-ticking to strategic muscle.

When thinking about where to start, FIS identifies the biggest near-term gains in four tightly linked areas: risk-appetite visualization and monitoring (53%), capital planning (52%), liquidity and funding stress testing (50%), and measurement of operational and other non-financial risks (49%).

The close clustering underlines their interdependence - risk appetite defines boundaries, while capital and liquidity testing prove whether those limits hold under stress. FIS concludes that improving one without the others risks fragility in execution.

FIS also cautions that what it calls a ‘moderate instability’ mindset - the majority view among respondents - can blur urgency unless it is converted into concrete, testable scenarios.

In the report, FIS notes that banks need to move beyond a fire-drill mentality across ILAAP, recovery options and operational continuity, and embed it fully into the finance, risk and treasury operating model.

This, it says, could take the form of regular exercises, mapping triggers to actions, and rehearsing data, funding and operational workarounds before conditions deteriorate.