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
APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.
ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.
BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.