Emerging risks are risks that a firm has identified as being on the horizon, relatively small but on the rise with the potential for significant impact in the future. These risks are not yet fully understood, making them difficult to quantify and manage. They could be related to a variety of factors, including changes in the market, technological advancements, regulatory changes, or societal shifts. The identification and management of emerging risks is a critical aspect of a firm's overall risk management strategy, as it allows the firm to anticipate and prepare for potential future threats.

Choice B is incorrect. The term "Risk Universe" refers to the set of all possible risks that a firm might face. It does not specifically refer to risks that are currently small but have the potential to significantly impact the firm in the future.

Choice C is incorrect. Taxonomies in risk management are used for classification of risks into different categories or levels; they do not represent a type of risk that is small now but could have significant impact in future.

Choice D is incorrect. A Risk Register is a document used by firms to identify, assess and track risks over time; it does not denote a specific type of risk like emerging ones which are currently small but can potentially have significant impacts.

Things to Remember

• Emerging risks are often associated with new technologies, changing market dynamics, regulatory changes, or shifts in societal behavior.
• Identifying and managing emerging risks requires a proactive approach and continuous monitoring of the external environment.
• Scenario analysis and stress testing are common techniques used to assess the potential impact of emerging risks on a firm.
• Effective communication and collaboration across different functions within a firm are essential for addressing emerging risks.