Swiss financial watchdog foresees greater uncertainty due to geopolitics

FINMA has identified increased financial risks due to the rising number of cyber attacks. Keystone-SDA

The Swiss financial sector will face greater uncertainty due to the numerous ongoing geopolitical conflicts around the world, warns the Swiss Financial Market Supervisory Authority (FINMA). Increased risks will arise linked to sanctions and cyber attacks, it said on Monday.

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In its latest annual risk monitor, FINMA highlights a rise in both financial and non-financial risks, especially the latter, in recent years.

For example, outsourcing risks were newly listed last year; this year sanction risks for financial institutions were added.

The situation that banks face due to sanctions on certain financial services or the granting of financial resources has worsened, said FINMA. Legal and reputational risks have increased considerably for financial intermediaries who deal with clients affected by
foreign sanctions, says FINMA. Since last year they have in intensified for the sanctions on Russia in particular.

In relation to the sanctions on Russia, FINMA has further expanded its access to data and carries out on-site reviews and investigations of sanctions management at various supervised institutions with high exposures.

Checks on service providers

The authority has also identified increased risks due to the rising number of cyber attacks. According to FINMA, over half of the reported attacks had an indirect impact on financial institutions via affected third parties.

However, the way in which banking service providers deal with cyber risks is sometimes not as mature as that of financial institutions. The authority is therefore focusing on ensuring that outsourcing at banks is successful. In addition, more on-site inspections are being carried out at important service providers on the subject of cyber risks.

Meanwhile, the other risks remained high, such as those related to real estate and mortgages, credit risk, liquidity and refinancing risk, market access and money laundering. Overall, many of the identified risks stem from the macroeconomic environment, said the report.

Interest rate shocks less likely

However, interest rate risks are no longer classified as the main risk. The probability of interest rate shocks has decreased compared to the previous year due to the current interest rate level and decreasing inflation, according to FINMA.

However, this should be taken with caution due to the higher geopolitical risks and possible effects on credit spreads (credit rating premium) of companies and states.

“In the current situation, we should not rule out a possible renewed increase in credit spreads,” said FINMA Director Stefan Walter in a press release.

Translated from German by DeepL/sb

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