Glossary

Earnings management is the use of accounting choices or the timing of transactions to shape reported profit, for example to smooth results or meet targets, while staying within the letter of the accounting rules.

Economic capital is a firm's own estimate of the capital it needs to cover unexpected losses from all its risks at a chosen confidence level, such as a 99.9% chance of staying solvent over a year.

The Egmont Group is an international network of national financial intelligence units that exchange information and expertise to fight money laundering, terrorist financing and related crime.

Electronic discovery is the process of identifying, preserving, collecting and reviewing electronically stored information, such as emails and chat messages, so it can be produced in a legal case or investigation.

Electronic identity verification confirms that a person is who they claim to be by checking their details against databases, digital credentials or biometric data, instead of inspecting paper documents in person.

An embargo is an official ban on trade with a country or on trade in certain goods, set by a government or international body, to pressure a state or limit its capacity.

Embezzlement is the dishonest taking or diversion of money or property by someone who was trusted to look after it, such as an employee, trustee or officer.

An emerging risk is a newly developing or changing threat whose causes, likelihood and impact are still poorly understood, so it cannot yet be measured with the usual tools.

Emissions monitoring and reporting is the routine measurement of an organisation's greenhouse gas emissions and the publication of those figures to regulators, investors or the public under set rules.

End-user computing risk is the chance of errors, data loss or misuse arising from spreadsheets, macros, databases and small tools built and run by business staff outside formal IT development and control.

An enforcement action is a formal step taken by a regulator or authority against a firm or person for breaking a law or rule, such as a fine, order, restriction, ban or prosecution referral.

Enhanced due diligence is the extra checking a firm applies to customers or relationships that carry higher money laundering or terrorist financing risk, going beyond the standard identification and verification steps.

Enterprise risk management is a way of managing risk across the whole organisation in one connected approach, linking risk to strategy and objectives and giving the board a combined view of what could affect results.

Environmental and social risk management is a process by which a lender or company identifies, assesses and controls the environmental and social harm that its activities, projects or clients might cause, and the risks that follow.

An environmental impact assessment is a formal study of the likely environmental effects of a proposed project, carried out before approval so that harm can be avoided, reduced or weighed against the benefits.

An environmental permit is an authority's licence allowing a site or activity to emit, discharge, store or dispose of specified pollutants or wastes, within stated limits and conditions.

ESG groups the environmental, social and governance factors that affect how a company operates and what risks and impacts it creates, and that investors, lenders and regulators weigh alongside financial results.

ESG risk is the potential for financial loss or reputational damage when environmental, social or governance factors affect a company, its customers or its investments.

Equal employment opportunity is the legal principle and body of rules requiring that hiring, pay, promotion, discipline and dismissal are decided on merit and not on protected characteristics such as sex, race, religion, disability or age.

The Equator Principles are a voluntary risk framework, adopted by banks and other lenders, for assessing and managing environmental and social risks in large project finance and related loans.

An escalation procedure sets out when and how an issue, incident or breach must be passed to a more senior person or body, within what time, and who must be told at each level.

ESG data quality describes how complete, accurate, consistent, comparable and verifiable a company’s environmental, social and governance data is, and so how far investors, regulators and managers can rely on it.

ESG integration is the explicit inclusion of environmental, social and governance factors in an investor's analysis and decisions, alongside financial data, because they can affect risk and return.

ESG ratings are scores or grades from third-party providers that assess how well a company manages environmental, social and governance risks, used by investors to compare firms and build portfolios.

ESG-linked executive remuneration ties part of senior managers' bonuses or long-term share awards to targets on environmental, social or governance measures, such as emissions, safety or diversity.

An ethics committee is a group, usually at board or senior management level, that oversees an organisation's ethical standards, reviews difficult cases and monitors how well its code of ethics is followed.

An ethics hotline is a confidential channel, by phone, web form or app, through which employees and others can report suspected misconduct or ask for guidance, often anonymously and often run by an outside provider.

An ethics officer is a senior person responsible for promoting ethical conduct inside an organisation, advising staff on dilemmas, running training and handling reports of breaches of its code of ethics.

The EU Taxonomy is a classification system listing which economic activities count as environmentally sustainable, based on technical screening criteria, so that investors and companies use the label consistently.

The ESRS are the detailed reporting standards that companies under the EU’s CSRD must follow, setting out what sustainability information to disclose across environmental, social and governance topics.

The EU AI Act is European Union legislation that regulates AI systems by risk level, banning some uses, imposing strict duties on high-risk systems and setting transparency rules for others.

Executive compensation is the total pay of a company's senior leaders, made up of salary, bonuses, share awards, pensions and benefits, designed to attract talent and link rewards to performance and risk.

An outsourcing exit strategy is a documented plan for ending a supplier arrangement in an orderly way, by moving the service to another provider or back in house, with little or no disruption.

Expected credit loss is a probability-weighted estimate of the losses a lender will suffer on loans and similar assets, booked as an allowance before any default happens, using past experience, current conditions and forecasts.

Expected loss is the average loss a lender or insurer anticipates over a period from a portfolio, usually calculated as probability of default times loss given default times exposure at default.

Expected shortfall is the average loss on the days when losses exceed the Value at Risk threshold, so it shows how bad the worst cases are once the threshold is passed.

Explainability is the ability to describe, in terms a person can follow, why an AI or statistical model produced a particular output or decision.

Export controls are government rules that restrict or license the sale or transfer of certain goods, software and technology to other countries, people or end uses, usually for security or foreign policy reasons.

An export controls internal compliance programme is a company's own set of policies, procedures and checks for making sure it follows export control laws, covering classification, licensing, screening, training and records.

Exposure at default is the estimated amount a lender would be owed at the moment a borrower defaults, including any drawn balance and the part of unused credit lines likely to be drawn by then.

Extended producer responsibility is a policy under which producers, importers or brand owners are legally accountable for collecting, recycling or disposing of their products and packaging once consumers have finished with them.

An external audit is a review of an organisation’s financial statements by an outside auditor, who states whether they are fairly presented and free from material misstatement.

Extortion is obtaining money, property or a favour from someone by threat, whether of violence, damage, exposure or the misuse of official power, so that the payer has no real choice.

Extraterritoriality is a country applying its laws to conduct, people or firms outside its borders, usually where there is a link such as its currency, citizens, markets or customers.