Finma sees more risks for the financial sector
Published: Thursday, Nov 9th 2023, 10:11
Updated At: Thursday, Nov 9th 2023, 10:13
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The Swiss Financial Market Supervisory Authority Finma sees more unease coming to the Swiss financial center than in the previous year. In addition to the previous main risks, Finma identifies two new problem areas in the "Risk Monitor 2023".
According to the report published on Thursday, this relates to the areas of liquidity and refinancing as well as the outsourcing of business activities.
Downfall of Credit Suisse
According to Finma, liquidity and refinancing risk involves the danger that institutions do not have sufficient liquid funds to meet their obligations in the event of a crisis. This problem could be caused by an increased need for collateral, rating downgrades or rapid outflows of customer funds, for example.
The latter was considered to be one of the main causes of the collapse of Credit Suisse, which was then taken over by UBS. According to Finma, such a so-called "bank run" can trigger a "stress situation with an unstoppable downward spiral".
Pent-up demand for outsourcing
The second new risk for financial institutions is the outsourcing of business activities. The transfer of "essential functions to third parties acts as a driver of operational risks", according to the verdict.
In extreme cases, the interruption of such functions could affect the stability of the financial market. The management and monitoring of service providers is therefore also the responsibility of the client in order to ensure operational functionality.
"Responsibility for the proper conduct of business cannot be delegated and therefore also extends to outsourcing," the report states. In this area, FINMA has determined that there is still some catching up to do, particularly in terms of "identifying the entire supply chain and the associated risks".
According to Finma, the risks already communicated last year also continue to include interest rate risks, credit risks for mortgages, credit risks for other loans, credit spread risks, cyber attacks, risks in the fight against money laundering and more difficult cross-border market access.
Checking the use of AI
In this year's Risk Monitor, FINMA also attaches importance to the topic of artificial intelligence (AI) in the Swiss financial market. It identifies challenges that arise, for example, in the context of AI decisions, the reliability of AI applications, the transparency and explainability of AI decisions and the equal treatment of clients.
FINMA requires financial institutions to "adequately address" the associated risks. The supervisory authority writes that this should be examined accordingly using a risk-based approach and the principle of proportionality.
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