Featured Product

    ESMA Report Looks at Green Finance Trends and Cloud Outsourcing Risks

    September 01, 2021

    The European Securities and Markets Authority (ESMA) published the second Trends, Risks and Vulnerabilities report of 2021. In addition to the risk assessment, the report discusses key trends, including those related to market-based finance, sustainable finance, and innovation. The report presents in-depth articles that focus on the financial stability risks of cloud outsourcing, market for small credit rating agencies in European Union, and the environmental impact and liquidity of green bonds.

    The report notes that sustainable finance continues to expand in Europe, as reflected in the 20% growth of environmental, social, and governance (ESG) fund assets and the 40% increase in outstanding sustainable debt instruments outstanding from the end of 2020. Recent corporate announcements on "net zero" emission reduction targets mark a step forward but lack consistency and details. ESG equity benchmarks delivered a mixed performance relative to non-ESG indices while the equity valuation of clean energy firms increased markedly in two years, despite similar returns on equity to fossil fuel firms. Flows into ESG funds accelerated, with impact and environmental funds being the fastest-growing strategies. Green bonds continue to dominate the ESG bond market while social bond issuance has accelerated. Four firms—Sustainalytics, Cicero, Moody's Vigeo Eiris, and ISSOekom—account for 75% of the market share of green bond external reviews in European Union. Innovation can support sustainability by addressing ESG information gaps through green financial technology (fintech) solutions, but the environmental cost of one particular innovation—cryptocurrencies—is soaring. Meanwhile, decentralized finance continues to gain momentum and regulator engagement with fintech through innovation hubs and regulatory sandboxes is becoming mainstream across European Union, with benefits for both parties.

    On of the four in-depth articles in the report analyzes the growing use of cloud service providers by financial institutions and how the concentration of those providers can create financial stability risks in case of outage. The article notes that high concentration in cloud service providers could create financial stability risks if an outage at a cloud service provider affects many of its clients, increasing the likelihood of simultaneous outages. Analysis using a stylized model calibrated with operational risk data suggests that cloud service providers need to be significantly more resilient than firms to improve the safety of the financial system. In financial settings where only longer (multi-period) outages cause systemic costs, the results suggest that cloud service providers can best address systemic risks by strongly reducing incident resolution times, rather than incident frequency. In the model, using a backup, a cloud service provider successfully mitigates the systemic risk caused by cloud service providers. However, back-up requirements may need to be mandated, as the systemic risk is an externality to individual firms. Finally, there is a clear need for detailed data on outages by financial institutions and cloud service providers.


    Related Links

    Keywords: Europe, EU, Banking, Securities, Suptech, Fintech, Regtech, Sustainable Finance, ESG, Green Bonds, Cloud Service Providers, Operational Risk, ESMA

    Related Articles

    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.

    March 13, 2023 WebPage Regulatory News

    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.

    March 12, 2023 WebPage Regulatory News

    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.

    March 03, 2023 WebPage Regulatory News

    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.

    March 02, 2023 WebPage Regulatory News

    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.

    February 28, 2023 WebPage Regulatory News

    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.

    February 28, 2023 WebPage Regulatory News

    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.

    February 28, 2023 WebPage Regulatory News

    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

    February 24, 2023 WebPage Regulatory News

    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.

    February 21, 2023 WebPage Regulatory News

    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

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793