Chapter 06 · Governance & regulationGovernance, Ethics & Risk
Systemic risk
Definition
Systemic risk is the risk that a shock, failure or accumulating pressure propagates through interconnected institutions, markets, ecosystems or social systems and causes widespread loss of function or stability beyond the original source.
References
This reference provides supporting context for how “Systemic risk” is defined and used.
Overview
How it is used
In professional practice, “Systemic risk” helps policymakers, regulators, legal teams, boards and organisations describe or assess the possibility that disruption spreads through an interconnected system and impairs the functioning or stability of the system as a whole. It is commonly encountered in legislation, policies, governance systems, contracts, oversight and compliance decisions.
A credible application identifies the applicable jurisdiction, legal or policy text, effective date, scope and responsible actor.
Why it matters
The practical importance of “Systemic risk” lies in the decisions attached to it. Its interpretation can determine responsibilities, rights, accountability and regulatory exposure; the term should therefore be supported by evidence proportionate to the claim or decision being made.