Reflections on risk: What 2024 taught us

As we reflect on the past year, it’s evident that 2024 presented both challenges and opportunities in risk management. In this post, we share key takeaways from the last year, offering insights that can help shape risk strategies for 2025.

#1. Predictive modelling: Smarter decisions for safer lending

Predictive modelling continues to advance as businesses navigate increasingly complex lending landscapes. Unsurprisingly, it stands out as one of the major learnings from the past year.

Nick Sime, Director of Fraud & Credit Risk Modelling, shares his perspective on predictive modelling:

"Modern credit risk relies heavily on predictive modelling, which has come a long way from older methods," says Nick Sime. "As lending gets more complex, companies using advanced AI and machine learning can better understand and manage their risks."

Nick recently outlined 14 key lessons from his experience that risk managers can apply to improve lending decisions. Here are three notable insights:

• Machine Learning models consistently outperform: "ML models consistently outperform traditional linear models, often providing a 10-15% uplift in Gini, which can translate to a 20% reduction in bad rates at the same cut-off."

• Sample size matters: "Larger samples help ML models identify complex, non-linear patterns, boosting performance. However, even smaller portfolios can see material improvements."

• Explainability constraints are not a barrier: "Ensuring models are explainable doesn’t have to mean sacrificing performance. In fact, explainability can enhance stability over time."

#2. Regulatory developments: A year of change

New regulations and ongoing regulatory feedback in 2024 brought both hurdles and opportunities for compliance teams.

Paul Monaghan, Regulatory Compliance Specialist at Jaywing, reflects on the shifting regulatory landscape:

“Firms continue to receive feedback on their IRB submissions under the enhanced EBA rules," shares Paul Monaghan. "Some firms have received approval whilst others need significant rework."

"The PRA published its Basel 3 rules relating to IRB in September, and we expect firms to continue developing compliant solutions, though many are likely well on their way, having anticipated changes through the consultation papers.

"IFRS 9 Economic Response Models have proven challenging, with actual default rates not increasing in line with the expectations implied by higher Bank of England base rates."

With the PRA’s Basel 3 rules now in place, many firms had already anticipated the changes and taken proactive steps towards compliance. Meanwhile, IFRS 9 challenges reinforce the need to revisit assumptions and refine model accuracy in response to economic uncertainty.

#3. Fraud prevention: Rising to the top of the agenda

Fraud prevention took centre stage in 2024, with increased regulatory scrutiny pushing businesses to adopt more proactive strategies.

Ben Archer, Fraud Prevention Lead, highlights this shift:

"More and more focus is going on fraud prevention as well as financial crime prevention. Clients aren’t able to just ignore fraud as a small percentage in relation to credit losses with the increased scrutiny from the government and regulatory bodies."

The key message for 2025? Firms must embed fraud prevention into their broader risk strategies. By treating fraud as a critical operational priority, businesses can strengthen regulatory compliance, build customer trust, and safeguard their bottom lines.

AI in credit and fraud risk: The tipping point

No longer a buzzword, AI adoption in risk management is driving greater efficiency and accuracy. 2024 saw firms accelerate their use of AI to unlock faster decision-making and improved outcomes.

Nevan McBride, Risk Practice Director, shares his perspective:

“We’re seeing a clear correlation between early AI adoption and competitive advantage. The performance gap between AI-enabled risk modelling and traditional approaches is becoming too significant to ignore.”

This highlights the urgency of moving from AI ambition to full-scale implementation. The most successful firms aren’t just experimenting with AI; they are embedding it deeply into their risk frameworks, ensuring robust governance and explainability to drive long-term success.

From insights to action

Looking back at 2024, one thing is clear: staying ahead in risk management requires continuous adaptation. Whether through AI-driven innovation, regulatory navigation, or strengthening fraud defences, these lessons serve as a foundation for future success.

By applying these insights, firms can refine their strategies and position themselves more effectively for the evolving risk landscape in 2025.