FINMA Sets Out Strategic Goals for Next Four Years
FINMA published the strategic goals for the coming four years (2021 to 2024), also highlighting the key areas of implementation. The key implementation areas include incorporation of final Basel III reforms, evaluation of small banks regime, enhancement of capital and liquidity stress testing regime, benchmark reforms, address the issue of too-big-to-fail, climate risk initiatives, and effective use of technology in supervision.
FINMA set out the following key priorities for implementing its strategic goals over the next four years:
- FINMA will strengthen and enhance its capital and liquidity stress testing regime and ensure that the regulatory measures initiated as a direct result of the last financial crisis are seen through to completion. This includes prompt and internationally compatible implementation of the final Basel III reforms as well as the completion of other regulatory projects with relevance for stability, such as the revision of the liquidity regulations for systemically important
banks and restructuring procedures for insurance companies. In insurance supervision, FINMA will review the current supervisory approach with regard to proactivity, prioritization, and forward-looking risk analysis. FINMA will also ensure that the new approach to the recognition of value adjustments for default risks in the banking sector is applied rigorously. FINMA will also evaluate the small banks regime and the revised audit system and identify potential for improvement.
- FINMA will closely monitor developments on the mortgage market and the financial institutions‘ risk management and will introduce institution-specific supervisory measures where necessary. The need for regulatory adjustments will be reviewed at regular intervals.
- FINMA will closely monitor the transition from LIBOR-based reference interest rates and ensure that the supervised institutions address the associated risks early on, to protect clients and ensure the proper functioning of the financial markets. FINMA will ensure a smooth transition from the reference interest rates in the SST.
- FINMA will intensify risk-based corporate governance supervision by analyzing outliers and taking concrete action, including establishing a supervisory process for the ongoing monitoring and observance of proper business conduct.
- FINMA will ensure that the systemically important banks complete their work on the emergency plans, so that either all are deemed effective or subsidiary measures are ordered. FINMA will complete the global resolution plans for the large banks and ensure that their global resolvability is regarded as credible. FINMA will ensure that work on the recovery plans of systemically important financial market infrastructures is completed and they are eligible for approval. Furthermore, resolution strategies will be drawn up for the systemically important financial market infrastructures. FINMA will also identify any need for regulation to ensure that large but not systemically important institutions have adequate crisis planning in place.
- FINMA will proactively work with public and private institutions to minimize the risks posed by cyberattacks to the financial sector and will work to ensure that the financial institutions have strong IT resilience and that risks resulting from outsourcing are managed responsibly. FINMA will set out its supervisory expectations concerning the use of big data (including the use of artificial intelligence and machine learning) in the supervised institutions’ business processes, to mitigate the associated risks.
- FINMA will proactively analyze the supervisory relevance of the latest technological developments, evaluate the associated risks for the financial institutions and their clients, and identify any need for regulatory action. Its primary aim is to apply the existing regulatory framework to new digital business models while remaining technology-neutral.
- FINMA will ensure that the financial institutions identify, assess, and manage climate-related financial risks appropriately. FINMA will closely follow the developments with regard to sustainability requirements in all their dimensions in Switzerland as well as internationally, and will analyze whether adjustments need to be made in supervision or regulation, to better tackle sustainability-related financial risks. FINMA will focus on the risks of greenwashing in the provision of financial services and distribution of financial products with a view to protecting clients. It will introduce effective measures within its remit and highlight any need for regulatory action. FINMA will call for effective disclosure of climate-
related financial risks and will ensure that this includes comparable and meaningful quantitative information based on scenarios, metrics, and targets. It will implement a supervisory framework to monitor climate risk management by larger supervised institutions. FINMA will draw on the recommendations of the relevant international bodies for this.
- Supervision of FINMA will become increasingly data-based and FINMA will, where beneficial, use data-based algorithms to identify risks. FINMA’s supervision will also be perceived as being “digitally engaged” in the financial sector, as a result of its integration of technological developments into its activities.
Keywords: Europe, EU, Switzerland, Banking, Basel, Regulatory Capital, Credit Risk, Benchmark Reforms, Suptech, Resolution Framework, Climate Change Risk, Strategic Goals, FINMA
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleBOJ Report Assesses Stability of Financial System in Japan
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023