The Swiss Financial Market Supervisory Authority FINMA has posted its Risk Monitor for 2024. According to the regulator, there are nine top principal risks for the financial sector aggravated by heightened geopolitical challenges.
These highlighted risks are as follows:
- Risks associated with real estate and mortgages
- The concern is that mortgages are being issued based on unsustainable lending criteria, and property could decline in value.
- Credit risk: other loans
- Declining earnings and falling market valuations can lead to losses
- Market risk: credit spread risk
- Higher sovereign or corporate credit spreads could lead to significant losses in the portfolios.
- Liquidity and funding risk
- A loss of confidence by investors can lead to a rapid outflow of liquidity and trigger a downward spiral that leads to a further deterioration in a bank’s liquidity.
- Market access
- Restrictions on access to important foreign markets, particularly in the European Union (EU), could adversely affect the profitability of Swiss financial institutions.
- Money laundering
- Breaches of due diligence and reporting obligations can have legal consequences.
- Sanctions
- Trade sanctions on goods are an area where risks are seen to be increasing.
- Outsourcing
- Outsourcing of critical functions to third-party providers remains a key source of operational risk in the financial sector.
- Cyber risks
- The Swiss financial sector continues to be a regular target for cyberattacks. Weaknesses in IT infrastructure, inadequate security measures, and lack of awareness increase financial institutions’ vulnerability.
Regarding Money-Laundering, FINMA states that risks are also growing in the crypto space. FINMA adds that with digital assets, they are taking institution-specific measures to mitigate the money laundering risk.
As well, Crypto is frequently used in cyberattacks or as a means of payment for illegal trading on the dark web.
The ongoing transition to digital financial services will continue to challenge regulators. While improving operations and offerings, digital financial may also bring unforeseen issues or hurdles pertaining to viability. FINMA says there is a concern that “in extreme cases, they could affect the stability of the financial market.”
