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
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.
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