Financial Markets Regulatory Outlook 2021
Recover, renew, rebuild
Our annual assessment from Deloitte’s Centre for Regulatory Strategy explores how major regulatory trends will affect the financial services industry globally in the year ahead, and how leaders can anticipate and respond to them effectively.
Although we observe differences through geographies – especially when as well looking at regulatory developments in the Americas or APAC – the overall trends are in line with Regulators and Executives priorities in Switzerland. In the recently released FINMA Strategy (2021-2024). The topics highlighted by FINMA are:
- Capital and liquidity
- Risk management and corporate governance
- Too big to fail, structural change and
- driving innovation in the financial center.
These outlined Priorities have a high overlap with the nine cross-sector themes of strategic significance that were identified by the 2021 edition of Deloitte’s Regulatory Outlook, as well as a number of other supervisory priorities in each of the Banking and Capital Markets, Insurance and Investment Management sectors. Especially when it comes to:
- Conduct, culture and governance
- Deploying digitalisation and innovation
Driven through COVID wave 2, Credit Risk, financial resilience and business model viability is one of the newer emerging topics, which will very likely become a more dominant topic on the agenda of executives and regulators. Still credit defaults in Switzerland remain on a historical very low level given the various state interventions – but with the overall expectations that loan losses might significantly increase during this year with negative impacts on financial resilience of financial institutions.
Supervisors expect firms to promote cultures that seek to achieve good customer outcomes, but at the same time, firms face continued pressure to manage their finances responsibly.
Regulatory work on sustainability has continued throughout the pandemic, as regulators continue to progress climate-related stress test initiatives, while at the same time pressing firms to integrate ESG considerations fully into their risk management frameworks and business strategies.
Firms should be sensitive to the supervisory concerns raised by the speed of digitisation, including issues such as operational resilience, conduct and prudential risks in payments, and AI governance and risk management.
In light of COVID-19, 2021 will see firms trying to manage credit impairments, implement recovery measures, maintain financial resilience, and pivot their business models.
Amid concerns that the mass shift to remote working has materially altered or facilitated patterns of financial crime, the near-term supervisory priority will be to ensure firms maintain robust risk and control frameworks in this ‘new normal’.
Supervisory attention will focus on ensuring that firms have taken stock of lessons learned in the first wave of COVID-19, and are prepared for future waves and associated disruption.
IBOR transition has entered what should be, for the most part, its final year. There remains a risk of disorderly transition, and we are also likely to see a multitude of competing rates in the market in January 2022.
There are a number of big ticket items where we know that the UK’s regulatory approach will diverge from the EU’s in the year ahead. Basel 3.1, CRD5 and Solvency II implementation are pertinent examples.
In this section we outline a range of supervisory priorities across the insurance, investment and banking and capital markets sectors complementary to the content in the cross-sector themes.
We do not expect significant slow-down in activity as supervisors press banks to deliver the substance agreed in their authorisation plans. We also anticipate increased EU supervisory pressure for certain clearing activity to migrate to the EU.