Banking Sector 2024: Strategic Priorities and Key Themes to Look Out For!
With slowing growth around the world, geopolitical tensions, technological disruptions and the forecast of climate disasters around the world, 2024 remains highly uncertain. OECD is expecting for 2024 the global growth to remain modest by a mild slowdown from 2.9% in 2023 to a forecasted 2.7% in 2024, while Asia is expected to continue to account for the bulk of global growth in 2024-25. UN paints a sobering picture for 2024 with the world economy facing multiple crises, potentially undermining the progress towards the Sustainable development goals.
Given the challenging global economic environment projected for 2024, supervisors and regulators are likely to prioritize several key areas to navigate the uncertainties and address emerging risks. Some potential focus areas include:
Risk Assessment and Monitoring:
Supervisors may intensify efforts to assess and monitor risks across financial institutions and markets. This includes a keen focus on vulnerabilities stemming from economic slowdown, geopolitical tensions, and technological disruptions.
Resilience Testing:
Regulators may emphasize the importance of stress testing and resilience assessments for financial institutions. This ensures that entities are equipped to withstand shocks and uncertainties in the global landscape.
Sustainable Finance Oversight:
With the UN highlighting potential crises that could undermine progress towards Sustainable Development Goals, supervisors may place increased importance on overseeing sustainable finance practices. This involves evaluating the environmental, social, and governance (ESG) risks within the financial sector. Recognizing the forecast of climate disasters, supervisors may encourage or mandate financial institutions to disclose climate-related risks in their operations and portfolios. This supports informed decision-making and enhances transparency.
Technology and Cybersecurity:
Given the increasing reliance on technology and the potential for disruptions, regulators may prioritize ensuring the resilience of financial systems against cyber threats. Supervisors may push for robust cybersecurity measures and incident response plans.
International Cooperation:
Recognizing the interconnectedness of global economies, supervisors may foster international cooperation and information exchange. This collaborative approach helps in addressing cross-border challenges and ensuring a coordinated response to emerging risks.
Consumer Protection:
As economic uncertainties may impact consumers, regulators could focus on enhancing consumer protection measures. This may include monitoring financial products, ensuring transparency, and addressing any predatory practices.
Regulatory Technology (RegTech) Integration:
Regulators may seek to leverage technological advancements to enhance their regulatory capabilities. The integration of RegTech can streamline compliance processes, improve data analytics, and facilitate quicker responses to emerging risks.
Crisis Management and Resolution Planning:
Regulators may emphasize the importance of robust crisis management and resolution plans for financial institutions. This ensures an orderly resolution in the event of a crisis, minimizing systemic impact.
Inclusive Financial Systems:
Given the potential economic challenges, supervisors may prioritize efforts to promote inclusive financial systems. This includes measures to enhance access to financial services and support economic stability at both local and global levels.
Against this background, what do we observe in practice regarding the priorities for supervisors and regulators in 2024?
The Basel Committee
For 2024, the Basel Committee will continue to pursue a forward-looking approach to identify and analyze risks and vulnerabilities to the banking system. The specific focus will be on analyzing and assessing supervisory implications of the ongoing digitalization of finance. Climate-related financial risk on the global banking system remains, of course, a priority on the agenda, and existing standards and guidance will be monitored and reviewed. Additionally, the implementation of Basel III standards will be monitored.
FSB Work Programme
The Financial Stability Board (FSB) will play a crucial role in various areas, including supporting global cooperation and financial stability. It aims to enhance the resilience of non-bank financial intermediation, address challenges related to cross-border payments, foster digital innovation, strengthen cyber and operational resilience, and tackle financial risks stemming from climate change.
EBA
The EBA will primarily focus, of course, on implementing the banking package and enhancing the single rulebook. Amidst increased interest rates and economic uncertainty, ongoing monitoring of financial stability and sustainability is paramount. Priorities also include developing oversight and supervisory capacity for the Digital Operational Resilience Act (DORA) and the Markets in Crypto Assets Regulation (MiCAR), as well as preparing for the new anti-money laundering and countering the financing of terrorism (AML/CFT) framework. There is an increased emphasis on innovation and consumer-related aspects, along with the implementation of EBA's data strategy to enhance the acquisition, use, and dissemination of regulatory data to relevant stakeholders.
ECB Banking Supervision - SSM Supervisory Priorities
In the context of economic uncertainties and advancements in digital and climate domains, the Single Supervisory Mechanism (SSM) will request supervised institutions, including banks, to bolster resilience against immediate macro-financial and geopolitical shocks. This involves efficiently addressing deficiencies in the governance and management of climate-related and environmental risks, as well as making strides in digital transformation and establishing robust operational resilience frameworks.
ECB Work Programme
SRB (Single Resolution Board) Work Programme 2024
In summary, the work program aligns more or less with the anticipated global economic developments and forecasts. In 2024, supervisors should prioritize a comprehensive and dynamic approach to navigate the complex global landscape. Emphasizing risk assessment, resilience testing, and sustainable finance oversight can fortify the financial sector against uncertainties such as slowing growth, geopolitical tensions, and technological disruptions. Additionally, fostering international cooperation, addressing climate-related financial risks, and ensuring consumer protection are essential aspects to uphold stability and inclusivity. The integration of regulatory technology, crisis management planning, and promotion of inclusive financial systems should also be integral to their strategic agenda.
What do you think the priorities for supervisors should be in 2024? Please leave a comment!
