EU Financial Regulators Assess Risks to The Financial Sector After The Outbreak of Covid-19 And Call For Enhanced Cooperation
The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have issued their first joint risk assessment Report of the financial sector since the outbreak of the COVID-19 pandemic. The Report highlights how the pandemic has led to further amplified profitability concerns across the board and heightened liquidity challenges in segments of the investment fund sector. It particularly points to economic and market uncertainty as a key challenge going forward.
The impact of the crisis on EU banks’ asset quality is a key concern as significant uncertainty about the timing and size of a recovery persists. The ESAs see a risk of decoupling of financial market performance from the underlying economic activity, and , a prolonged lower for longer interest rate environment which is expected to weigh on the profitability and solvency of financial institutions, as well as contributing to the build-up of valuation risks.
Directly following the COVID-19 outbreak in Europe, the ESAs’ actions provided for regulatory flexibility, fostered operational resilience, and highlighed the importance of consumer protection. In light of ongoing uncertainties on the recovery from the COVID-19 pandemic, regulatory and supervisory cooperation between the ESAs, the European Systemic Risk Board (ESRB) and the European Commission remains key. In particular, the ESAs highlighted the need to implement the following policy actions:
- monitor risks and perform stress testing: risks to valuation, liquidity, credit and solvency have increased across financial sectors. The use and adequacy of liquidity management tools in the investment fund sector should be continuously monitored;
- foster flexibility where and when needed: supervisors and banks are encouraged to make use of the flexibility in the existing regulatory framework, including use of capital and liquidity buffers to absorb losses;
- support to the real economy: capital relief should be used in support of continued lending to the real economy in the downturn;
- stay prepared: EU financial institutions need to be well-prepared for any disruptions they and their clients may face at the end of the UK’s transition period of leaving the EU;
- supervise digital transformation: it is key for financial institutions and their service providers to carefully manage their ICT and security risks, including when outsourcing ICT activities.
The three ESAs cooperate regularly and closely to ensure consistency in their practices. In particular, the Joint Committee works in the areas of supervision of financial conglomerates, accounting and auditing, micro-prudential analyses of cross-sectoral developments, risks and vulnerabilities for financial stability, retail investment products and measures combating money laundering. In addition, the Joint Committee also plays an important role in the exchange of information with the ESRB.
The Joint Committee is the forum for cooperation between the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA), collectively known as the ESAs.
Joint ESA Report on Risks And Vulnerabilities in The EU Financial System 2020
JC 2020 67 TRV REPORT.PDF (570.67 KB)
Latest News from
Commission disburses €17 billion under SURE to Italy, Spain and Poland27/10/2020 16:10:00
The European Commission has disbursed a total of €17 billion to Italy, Spain and Poland in the first instalment of financial support to Member States under the SURE instrument.
Boeing WTO case: the EU gets formal green light to impose duties on U.S. imports27/10/2020 15:25:00
The Dispute Settlement Body of World Trade Organization (WTO) yesterday formally authorised the EU to take countermeasures against the United States.
EU-African Union relations: joint communiqué of the AU Peace and Security Council and the EU Political and Security Committee27/10/2020 14:10:00
On 26 October 2020, the African Union (AU) Peace and Security Council (AU PSC) and the European Union (EU) Political and Security Committee (EU PSC) held their 12th Annual Joint Consultative Meeting, virtually, as part of their regular dialogue within the framework of Article 17 of the Protocol Relating to the Establishment of the Peace and Security Council of the African Union, and the AU – EU partnership. The meeting was co-chaired by H.E. Ambassador Osama Abdelkhalek, Permanent Representative of the Arab Republic of Egypt to the AU and Chairperson of the AUPSC for October 2020 and H.E. Ambassador Sofie From- Emmesberger, Permanent Chair of the EU PSC.
Coming up: budget 2021, Covid-19 measures, Gender Equality Week27/10/2020 13:25:00
This week MEPs will decide on their priorities for the 2021 budget, consider how the pandemic has affected fundamental values and hold the first European Gender Equality Week.
EU consumers should enjoy a “right to repair” and enhanced product safety27/10/2020 12:38:00
The Internal Market Committee proposed a series of measures to strengthen consumer protection and enhance product safety and sustainability.
The EU supports nutrition and social protection in Malawi with €39 million27/10/2020 11:33:00
As part of Team Europe's response to COVID-19 in Malawi, the European Union has allocated €39 million to mitigate the negative effects of the COVID-19 pandemic.
Refugee camps on the Greek islands: situation and challenges27/10/2020 10:38:00
The situation on the Greek islands following the destruction of the Moria refugee camp will be the focus of a debate in the Civil Liberties Committee this afternoon.
A greener, fairer, and more robust EU farm policy27/10/2020 09:25:00
The EU’s future farm policy should be more flexible, sustainable, and crisis-resilient, so that farmers can continue to deliver food security across the EU.
European climate law: Council reaches agreement on large parts of the proposal26/10/2020 15:25:00
The Council recently (23 October 2020) reached agreement on a partial general approach on the proposed European climate law.