There are common regulatory and supervisory themes emerging from the 2021 work plans of three of the main global regulatory bodies.

These themes will inform the work of EU and national regulators and therefore indicate areas that firms should consider in their regulatory change management programmes.

The work plans of the Financial Stability Board (FSB), the International Organisation of Securities Commissions (IOSCO) (PDF 234 KB) and the International Association of Insurance Supervisors (IAIS) cover systemic risk, recovery, digital finance and sustainable finance. Meanwhile, the European Commission is undertaking reviews of five major pieces of EU legislation (see EU-UK relationship evolves) and is consulting on supervisory convergence and the effectiveness of the European Supervisory Authorities (ESAs).

Systemic risk

As expected, the global bodies continue to focus on systemic risk. Building on its Holistic Review of Market Turmoil in March 2020, the FSB will continue to work on enhancing the understanding of systemic risks in non-bank financial intermediation (NBFI), including analysis of structural and interconnectedness issues and pro-cyclicality, and policies to address these risks. The FSB plans to consult on policy proposals to enhance the resilience of money market funds in July. In tandem, IOSCO's work programme contains a new priority of financial stability and the systemic risks of NBFI, and IOSCO will contribute to the work on the FSB on MMFs.

The resilience of central clearing counterparties (CCPs) is key in ensuring financial stability. The FSB, the Committee on Payments and Market Infrastructures (CPMI) and IOSCO will continue to collaborate on work on central counterparties' financial resources. And the IAIS will continue its Global Monitoring Exercise (GME), which aims to detect the possible build-up of systemic risk in the global insurance sector, and will finalise liquidity metrics.

The FSB's roadmap includes a smooth transition away from LIBOR to more robust benchmarks by the end of 2021. The pressure is now on firms to implement transition plans, with a key milestone reached when the Financial Conduct Authority (FCA) confirmed that LIBOR will end in its present form for all currencies apart from the US dollar at the end of 2021 - see KPMG's update for more information.

Recovery

The FSB has reported on factors that should be considered for an orderly unwinding of COVID-19 policy support measures, finding that, on balance, most authorities believe that premature withdrawal of support could inflict more damage to the economy than maintaining support for too long. IAIS will analyse and assess COVID-19 related policy measures as well as initiatives taken to address pandemic risk protection gaps.

IOSCO is taking a slightly different approach, recognising the challenges posed to regulators and industry by lockdown measures and the expected continuation of large-scale remote working. It is also focused on investor protection issues. By 2022, IOSCO will issue three reports covering: misconduct risks; operational, cyber-security and business contingency planning risks; and fraud and scams.

Digital finance

With increased remote working, potential for cyber-attacks has increased. The FSB is exploring further harmonisation of reporting by financial institutions, including financial market infrastructures, to their financial regulators or supervisors.

IAIS will undertake a survey of regulatory and supervisory responses to FinTech developments, including the implications for future development of global insurance markets. The FSB will continue its work to address the regulatory, supervisory and oversight challenges raised by global 'stablecoins', as part of its implementation of the FSB roadmap to enhance cross-border payments. And IOSCO will continue to explore how artificial intelligence and machine learning are being used in capital markets, including by market intermediaries and asset managers, and emerging risks. It is expected to report in Q2 2021.

The rapid growth in digitalisation, especially via social media, has changed the way financial products are marketed and distributed, providing new opportunities for domestic and cross-border offerings. IOSCO is developing a set of policy measures to address and mitigate the risks posed by online cross-border marketing and distribution. The measures will also contain guidance on effective enforcement approaches. The final report will be published by end-Q3 2021.

Sustainable Finance

The FSB will assess the availability of data through which climate-related risks to financial stability could be monitored. It will also explore ways to promote globally comparable, high-quality, auditable standards of disclosure, based on the recommendations of the Task Force on Climate-related Financial Disclosures.

IAIS will finalise an application paper on the supervision of climate-related risks in the insurance sector, including practical examples and case studies on how to apply insurance core principles in this area, and IOSCO's three focus areas are:

  • Disclosures by issuers (report by end-June 2021) 
  • Disclosures by asset managers (report by end-2021, with particular attention to green washing) 
  • ESG ratings and data providers (report by end-2021)

See Sustainable finance for the latest developments in global standard setting and EU regulation.

Focus on conduct and culture remains

By end-2021, IOSCO will report on the findings of its thematic review of conduct-related issues in relation to index providers. The review will explore issues related to the role of asset managers in relation to indices and index providers, and the role and processes of index providers in the provision of indices (including the potential impact of administrative errors on funds and identifying potential conflicts of interest that may exist at index providers in relation to funds).

IAIS is reviewing the way that supervisors can assess conduct-related outcomes and is also exploring the importance of insurer culture as a key intersection point for the supervision of prudential and conduct issues.

Supervisory convergence in the EU

Meanwhile, the European Commission is consulting on supervisory convergence and the effectiveness of the ESAs, as part of the Capital Markets Union action plan. The consultation outcomes could change the way EU regulation is implemented and supervised. On supervisory convergence, the Commission is seeking feedback on areas such as the ESAs' performance in peer reviews, no action letters, providing opinions and Q&A.

The section on the single rulebook covers topics such as whether member states' 'gold plating' of directives is detrimental to the single market and what level of regulation should be enhanced/tightened in order ensure uniform application of the single rulebook.

The consultation also serves as a stocktake of the 2019 review of the ESAs and their performance since then. The Commission requests feedback on the ESA's responses to the COVID-19 crisis, their main achievements in the consumer and investor protection areas, their roles in enforcement and in monitoring and assessing supervisory development in third countries, their governance and ESMA's direct supervisory powers.

In the context of the COVID-19 crisis and the prolonged low-yield environment, EIOPA has identified its two strategic supervisory priorities as business model sustainability and adequate produce design. National regulators are expected to take these priorities into account when drawing up their work programmes and EIOPA will coordinate supervisory actions.

STOP PRESS

BCBS has flagged three key risks and trends in its workplan (PDF 4 MB) for 2021/22: the impact of digitalisation and disintermediation of finance on banks’ business models and the banking system more generally; the assessment, measurement and mitigation of climate-related financial risks; and the impact of a “lower for longer” interest rates environment on bank business models. The workplan focuses on three key areas alongside the ongoing implementation of the Basel reforms.

  • COVID-19 resilience and recovery: monitoring and assessing risks and vulnerabilities to the global banking system; mitigating those risks by developing and deploying additional regulatory and supervisory responses that support the banking system's resilience and a sustainable economic recovery; monitoring the implementation and unwinding of domestic pandemic-related measures to ensure a consistent implementation of the Basel 3 framework and; evaluating initial lessons learned from the COVID-19 crisis.

  • Horizon scanning and mitigation of risks: a forward-looking approach together with analysis of the implications of medium-term structural trends and disruptions and completion of outstanding initiatives related to mitigating risks and structural trends.

  • Strengthening supervisory coordination and working practices: focus on the use of artificial intelligence and machine learning and broader issues related to the use of technology, data and technology governance, operational resilience especially cyber security, and leveraged lending and collateralised loan obligations.

The Committee will monitor the full, timely and consistent implementation of the Basel 3 framework by all members and complete an evidence-based evaluation of the effectiveness of the standards. It will also continue to cooperate with other global standard setting bodies and international fora on cross-sectoral supervisory issues, pursue further initiatives to promote the role of proportionality in bank regulation and supervision, and develop practical guidance on the use and design of a proportionate regulatory and supervisory framework, for use by jurisdictions on a voluntary basis.

Connect with us

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today

Related content