ESMA Publishes Report on Trends, Risks, and Vulnerabilities in EU
ESMA published the first trends, risks, and vulnerabilities (TRV) report of 2020. In addition to the level of risks in EU, the report also takes an in-depth look at three specific issues via articles on the implications of bigtech for the financial sector, the short-termism pressures from financial markets, and the risk exposure of EU funds to potential bond downgrades. As per the report, risks in markets under the remit of ESMA remained high, particularly in securities markets and for consumers.
The report shows that market risk remained very high in the second half of 2019, amid continued geopolitical uncertainties, including Brexit and US-China trade relations. Credit risk and liquidity risk also remained high. Credit risk, in particular, remains elevated with deteriorating corporate debt quality and increasing risks of fallen angels (bonds being downgraded to below BBB) as the share of BBB-rated debt grows. The report also discusses structural market developments in the areas of securities markets, market-based finance, sustainable finance and financial innovation, with focus on the implications and challenges associated with the entry of bigtech firms into the financial sector.
This article on the implications of bigtech for the financial sector looks at the increasing presence of bigtech firms that take advantage of their vast customer networks, data analytics, and brand recognition. However, the growth of bigtech financial services varies by region, reflecting differences in the existing financial services provision and regulatory frameworks. The high level of market concentration typically observed in bigtech may get carried into financial services, with potentially adverse impacts on consumer prices and financial stability. The analysis considers the impact these firms could have and concludes that regulatory cooperation is needed to manage the financial stability risks that could arise as bigtech firms increase market concentration. Although bigtech firms typically devote huge resources in the form of advanced technology and specialist expertise to cyber-security, this feature could make them an attractive target for cyber-attacks and increase the detriment to individuals in the event of a data breach.
The report highlights that regulators and supervisors are well-positioned to gain insights about business propositions from initiatives such as innovation facilitators (including regulatory sandboxes). Development of innovative suptech tools may provide further information about market developments, helping authorities to mitigate potential risks and set appropriate supervisory expectations. To this end, ESMA continues to facilitate and coordinate sharing of information on financial innovation among its national competent authorities. Innovation facilitators across the financial sector are a valuable source of market intelligence. The importance of sharing such information among authorities at the EU level is reflected in the recent establishment of the European Forum for Innovation Facilitators (EFIF) by EC and ESAs. There may be value in continuing to deepen cooperation at national, European, and international levels among financial sector regulators and supervisors and other authorities, such as those responsible for data protection.
Related Links
Keywords: Europe, EU, Banking, Securities, TRV, Credit Risk, Liquidity Risk, Sustainable Finance, Market-Based Finance, Bigtech, Suptech, Cyber Risk, ESMA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
IFSB to Include IFSB-17 in the FSB Compendium of StandardsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.