European Supervisory Authorities Make Recommendations to Address Risks in EU Securities, Banking and Insurance Sectors04/12/2018The Joint Committee of the European Supervisory Authorities has published a report on risks and vulnerabilities in the EU financial system. The ESAs are the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority. The ESAs make recommendations for policy actions by the ESAs, national regulators and financial institutions. A summary of the risks and recommendations contained in the report is set out below.
- To combat cyber risks, the ESAs recommend that financial institutions should continue to improve IT systems, explore risks in the context of information security and take steps to resolve risks surrounding connectivity and outsourcing to third-party providers. The ESAs will continue to keep these risks under review. ESMA is launching a supervisory project on cloud computing outsourcing and will continue work to address supervisory convergence. The EBA is developing guidelines on the management of information and communication technology risks. EIOPA is conducting a qualitative exercise on cyber risk with national regulators and the industry.
- To address concerns relating to climate change, including the sustainability of investments across the financial sector and potential poor asset quality, the ESAs recommend that financial institutions should include sustainability risk in their governance and risk management frameworks and also develop sustainable financial products.
- Valuation risk and the potential for sudden risk premia reversals are risks that the ESAs consider should be tackled by the development and regular use of stress tests across all sectors. In addition to the existing stress test frameworks, ESMA is developing an approach to stress testing in the asset management industry and is also preparing guidelines for stress testing carried out by money market funds and guidelines for asset managers on liquidity stress testing in all funds.
- On the continued uncertainty around Brexit, the ESAs reiterate that financial institutions should continue to plan for the U.K.'s withdrawal from the EU, including by assessing contractual continuity and possible relocations.
View the report.
Financial Regulatory Developments Focus