Financial firms are prioritising communications surveillance, but most are still failing to monitor Social Messaging i.e., text and WhatsApp communications, putting themselves at risk of regulatory scrutiny and fines like those levied against Bank of America this week, according to the latest data from RegTech leader SteelEye. SteelEye’s Compliance Health Check report surveyed 170 senior compliance professionals in financial services and found that just 15% of firms are monitoring WhatsApp at all, despite the continued levying of huge fines against those found to be failing to monitor the communications of regulated employees effectively. Even fewer are monitoring Slack (9%) and Signal (3%) – and even considering the more expected channels there remains significant work to be done, with just 40% capturing Microsoft Teams, 40% Bloomberg Chat and 25% Zoom. Continue reading…

by Michel Klompmaker

According to the chairman of the SOBI Foundation, Pieter Lakeman, De Nederlandsche Bank (DNB) is forcing pension funds to use incorrect actuarial interest rates. For their annual reports for 2021, the pension funds were obliged to use an actuarial interest rate of approximately 0.57%. If 4% had been used as the actuarial interest rate, which was done until 2007, the pension provisions would have been approximately 60% smaller at the end of 2021. It is clear that this is not a matter of several thousand euros. For example, the pension provision of PMT, the third largest pension fund, was over 95 billion euros on 31 December 2021. At an actuarial interest rate of 4%, this would be more than 55 billion euros less. In fact, this means that the equity capital is then understated by more than EUR 55 billion in the balance sheet. At an actuarial interest rate of 5%, the provision would even be approximately 70% smaller and PMT’s equity would amount to 65 billion euros. For the largest pension fund, the ABP, the equity is shown in the balance sheet as 54 billion euros via the actuarial interest rate prescribed by DNB, while in reality, with a somewhat more normal actuarial interest rate of 4%, it amounts to more than 370 billion.  Continue reading…

The European Central Bank (ECB) and the European Systemic Risk Board (ESRB) has on 26 July published a joint report on how climate shocks can affect the European financial system. The findings show that climate risks can quickly spread and harm companies and banks alike. The report adds further evidence on the systemic nature of climate risks and provides a foundation for a macroprudential policy response. The report identifies several amplifiers of climate risk across the financial system. Transition risks may be magnified because of economic and financial linkages between and across banks and companies. For example, a surge in carbon prices could increase the likelihood that the default of one company leads to the default of another. While this particularly applies to high-carbon companies, it could also affect their less carbon-intensive counterparties. Continue reading…

The National Bank of Belgium (NBB) is to support the European Commission in funding the important NextGenerationEU recovery plan. The Commission has decided to call on the NBB’s market infrastructure and expertise for issuance of the massive package of bonds worth over € 800 billion. During the coronavirus crisis the European Commission decided to support the Member States with an extensive recovery package to make the Union greener, healthier, more digital and more resilient. The package is called NextGenerationEU and will be funded by resources made available by the issuance of debt securities with a maturity of three months to thirty years. Altogether the investment programme amounts to over € 800 billion. The European Commission decided to call on the European Central Bank and the National Bank of Belgium for the issuance of these bonds. While the ECB will act as the payment bank the NBB will arrange the issuance of the bonds through its securities settlement system. Continue reading…

In its flagship economic report, the Bank for International Settlements (BIS) said the global economy risks entering a new era of high inflation. Stagflation dangers loom large, as a combination of lingering disruptions from the pandemic, the war in Ukraine, soaring commodity prices and financial vulnerabilities cloud the outlook. According to the BIS’s Annual Economic Report 2022, the priority for central banks is to restore low and stable inflation. In doing so, they should seek to minimise the hit to economic activity, thereby safeguarding financial stability. Engineering such a “soft landing” has historically been difficult, and the starting conditions today make it challenging, the BIS said. Continue reading…

Two of the United Kingdom’s most senior ministers have resigned from the cabinet in the latest blow to Prime Minister Boris Johnson’s leadership. Health Minister Sajid Javid and Finance Minister Rishi Sunak announced their resignations within minutes of each other on Tuesday, plunging Johnson’s government into crisis. The resignations came as Johnson was apologising for what he said was a mistake for not realising that a former minister in charge of pastoral care was unsuitable for a job in government after complaints of sexual misconduct were made against him, in the latest embarrassment to have engulfed his government. In their resignation letters to the prime minister, both ministers took aim at Johnson’s ability to run an administration that adhered to standards. Continue reading…

Almost half of firms (44%) are planning to invest more in RegTech solutions in the next 12 months to cope with the growing pressure on the compliance function in this fast moving and increasingly complicated regulatory and operational landscape. A further 41% expect to invest the same amount as the previous 12 months. This investment is driving up the overall cost of compliance with almost all (90%) of financial services firms reporting increased compliance costs over the past five years. One in ten said costs have doubled. This was discovered by compliance technology and data analytics firm SteelEye, in its first-ever Annual Compliance Health Check Report. Continue reading…

Debt financing can spur economic growth but may also pose risks to financial stability and macroeconomic performance. Private non-financial sector debt increased to an all-time high of around 170% of world GDP during the Covid-19 pandemic, spotlighting the role of debt in supporting economic activity as well as the associated risks. Central bank frameworks for monitoring debt vulnerabilities were strengthened in the years prior to the Covid-19 crisis. Central banks have made increasing use of sectoral and entity-level data to look beneath aggregate figures that might conceal vulnerabilities; the distribution’s tail often provides a better signal of debt vulnerabilities than the middle. Continue reading…

by Laura van Geest

The last decade has brought progress in terms of financial stability, financial wellbeing, and fair and transparent markets. However, these are not ‘safe assets’. Climate change, the destabilisation of the international political order and the normalisation of monetary policy all affect the economy, the financial sector, consumers, and society at large. Digital transformation in particular will shape the future of the financial sector and financial supervision. Will the traditional financial services companies still play an important role twenty years from now ? Or will the technological superiority of Big Tech firms make them the dominant players ? Or will we move towards an alternative world of decentralised finance ? And what are the implications for supervisors and policymakers ?
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