FINMA published the first issue of Risk Monitor. This publication provides an overview of the most important risks facing supervised institutions over a time horizon of up to three years. Going forward, each issue of this publication will highlight one selected trend with the potential to substantially impact the Swiss financial market over the long term. The report will also cover the focus of the supervisory activity of FINMA on the basis of the identified risks. This issue discusses the financial risks arising from climate change as one of the most important long-term risks identified by FINMA.
The six principal risks identified by FINMA for its supervised institutions and the Swiss financial center are the persistent low interest-rate environment, a possible correction on the real estate and mortgage market (especially in the investment property segment), cyber risk, a disorderly cessation of LIBOR benchmark interest rates, money laundering, and increased impediments to the cross-border market access, particularly in EU. Besides the risks highlighted in this issue, FINMA deals with numerous other risks in its supervisory work. FINMA plans to focus supervision on the key risks identified earlier, including the following.
- With respect to the banking sector and the real estate and mortgage market, FINMA will focus on developments in the buy-to-let market. For insurers, FINMA will conduct a stress test to gain an insight into the impact of properties and mortgages held in investment portfolios on the solvency of insurance companies. Furthermore, FINMA will analyze the external valuation procedures of insurance companies to value properties for potential modeling risks.
- On cyber risks, FINMA will therefore focus above all on improvements to the crisis management toolkits of supervised financial institutions and their stakeholder groups. FINMA will also provide an active input to the cross-institutional supervisory coordination platform for combating cyber-attacks.
- With regard to the impending abolition of LIBOR benchmark interest rates, FINMA will continue to work to ensure that supervised financial institutions are well-prepared for the replacement of LIBOR and engage in discussions on this issue with the national working group and relevant authorities. FINMA will focus on ensuring that, where possible, no new contracts or products refer to these benchmark interest rates if the term of the contract in question extends beyond the terminal LIBOR date and fallback clauses or other suitable legal provisions have not been included in these contracts. FINMA is also working on the replacement of LIBOR in the Swiss Solvency Test or SST.
Keywords: Europe, Switzerland, Banking, Insurance, Securities, Risk Monitor, Cyber Risk, Climate Change Risk, Credit Risk, Interest Rate Risk, Benchmark Reforms, Stress Testing, FINMA
BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).
US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.
PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.
FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).
EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.
ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.