EU Regulators Warn of Cyber Risk, Credit Losses, Market Exuberance - Regulation Asia

EU Regulators Warn of Cyber Risk, Credit Losses, Market Exuberance - Regulation Asia



The EBA, ESMA and EIOPA warn of increasingly sophisticated cyber-attacks, deteriorating credit quality, and possible exuberance in markets.


The EBA (European Banking Authority), ESMA (European Securities and Markets Authority) and EIOPA (European Insurance and Occupational Pensions Authority) have jointly published their second risk assessment report for 2021.


The report notes a positive outlook for the economic recovery, but that the expectations remain uncertain and uneven across member states. In particular, it highlights increasing debt levels, rising asset prices, inflation expectations, investor risk-taking and financial interconnectedness issues as key risks.


The report also highlights the increasing vulnerabilities across the financial sector from cyber risk. “The financial sector has been hit by cyber-attacks more often than other sectors, while across the digital economy, cyber-criminals are developing new techniques to exploit vulnerabilities,” it says.


Financial institutions are urged to “rapidly adapt” their technical infrastructure and “carefully manage” their ICT and cyber risks: “They should ensure that appropriate technologies and adequate control frameworks are in place to address threats to information security and business continuity, including risks stemming from increasingly sophisticated cyber-attacks.”


The report also points to event-driven risks (GameStop, Archegos, Greensill) and rising activity in crypto-assets as indicators of “increased risk-taking behaviour and possible market exuberance”, fuelling concerns about the sustainability of current market valuations.


“Disorderly increases in yields and sudden reversals of risk premia should be closely monitored in terms of their impacts for financial institutions as well as for investors,” it says.


The EU regulators warn of a possible deterioration of asset quality in the financial sector, calling on banks to assess the consequences of the pandemic on their lending books and to adequately manage the transition towards the recovery phase.


“Banks may need to withstand possibly increasi ..

Support the originator by clicking the read the rest link below.