P.Venkatesh, Director – Thought Leadership
Maveric Systems Limited
2020s has been a decade of quite a few technological and geopolitical shifts that have had a significant impact on global financial markets. On the technology front, there was accelerated digitization across industries, with financial institutions adopting advanced technologies like blockchain, cloud computing, and AI. Fintech companies disrupted traditional banking models with mobile payments, peer-to-peer lending, and robo-advisors. Simultaneously, heightened concerns over cybersecurity prompted the implementation of robust measures in response to rising data breaches, ransomware attacks, and frauds.
On the geopolitical front, trade wars (Sino-US relations, etc.), Brexit, geopolitical hostilities (Russia-Ukraine war), and the pandemic took center stage. In April 2024, the collapse of Republic First Bank marked the beginning of a series of failures and voluntary collapses of several US banks over the past decade, with notable institutions such as Silicon Valley Bank and Signature Bank following suit in the preceding year.
While these shifts took place in different regions globally, today, global financial systems are interconnected more than ever. So, these changes have directly impacted investors, financial markets, and economies worldwide. For instance, a bank collapse in the US may have contributed to increased market volatility, prompting investors to seek refuge in safe-haven assets like gold or the Swiss Franc. Alternatively, war hostilities increased oil prices, thus influencing investment decisions in emerging economies.
Most importantly, these tensions and their impact on global financial markets have propelled European regulatory bodies and financial institutions to adopt a holistic approach to risk mitigation and compliance. Their approach is three-fold.
– mitigating risks, preventing regulatory arbitrage, ensuring systemic stability for protecting consumers (especially with data privacy), and developing compliance frameworks that are flexible and forward-looking.
– moving from passive observation of the idiosyncratic risks that financial institutions pose to securing a holistic and detailed view of the US and EU banking sector.
– scrutinizing financial risks at a granular level enables regulators to uncover hidden vulnerabilities, anticipate emerging threats, and tailor their interventions effectively.
A holistic approach such as this can foster excellent stability and trust in the financial system, protect consumers, and ensure systemic resilience. It also can enable European firms to bolster investor confidence and contribute to global financial markets’ overall stability and integrity.
A recent Regtech insights report by Maveric Systems reveals that regulators are zooming in to include not just financial risks like BASEL IV and FRTB but also non-financial risks like DORA, AI, Cybersecurity, and surveillance of bad actors (greenwashing). The report examines regulators’ key steps to mitigate financial risks and restore confidence in the global banking system.
With regulators adopting comprehensive measures to stabilize the global banking system, banks now face the onerous task of recalibrating hundreds of systems to the new data schema and completing extensive testing ahead of the implementation deadlines. As banks work towards this goal, collaboration between regulatory bodies and financial institutions will be crucial in navigating the complexities of the modern financial landscape.
Risk management is the process of identifying, assessing, and controlling threats to an organization's capital and earnings. It involves analyzing potential risks and implementing strategies to minimize their impact.
Financial stability refers to a condition where the financial system operates effectively, with institutions able to manage risks and absorb shocks, ensuring the smooth functioning of the economy.
Regulatory compliance is the adherence to laws, regulations, guidelines, and specifications relevant to an organization's business processes. It ensures that companies operate within legal frameworks.
Banking technology encompasses the tools and systems used by financial institutions to manage operations, enhance customer service, and improve the efficiency of banking processes.
Financial markets are marketplaces where trading of securities, commodities, and other financial assets occurs. They facilitate the exchange of capital and liquidity for businesses and investors.
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