On 7 November 2023, the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published its ‘Trend Monitor 2024’ report highlighting key trends that will shape the financial landscape in the coming year. The AFM notes that 2024’s financial landscape will be shaped by geopolitical developments, including the economic downturn, sustainability challenges, new European regulations and the fight against financial crime.
The report identifies the following trends for 2024:
- General developments: Economic growth is declining, with persistent inflation and rising interest rates as the main causes although Government intervention has limited the financial impact of both.
- Digital transformation: The widespread adoption of digitalisation, such as the use of artificial intelligence (AI), creates both opportunities and risks for the financial sector. Digitalisation can lead to greater efficiency and innovation in the provision of financial services and support greater diversity of financial services providers. However, the digitalisation of financial markets can lead to new risks, such as the uncontrolled use of AI in the advice and distribution of financial products and services. Cyber risks are also growing in importance. In this context, the AFM’s publication “Algorithmic collusion in capital markets“, takes a closer look at how self-learning trading algorithms in capital markets can lead to undesirable outcomes due to the risk of algorithmic collusion (tacit algorithmic collusion).
- A slow sustainability transition: There is a growing social and political desire for financial markets to accelerate the transition to sustainability. As a result of climate change, extreme weather events such as heavy rainfall and prolonged droughts will become more frequent. This will increase the risk of flooding and the deterioration of building foundations. These risks have potentially significant financial implications for homebuyers and homeowners in the form of potential damage and diminished home values. In its publication “Pricing climate risks in the housing market“, the AFM highlights the consequences of inadequate pricing of climate risks in real estate valuation and offers some possible solutions thereto.
- Internationalisation and financial crime: The Dutch financial markets are attractive to foreign market participants. Driven by digitalisation, the AFM sees an increase in financial services provided across national borders. Next to the positive effects of an increase in supply and a greater diversity of providers, this also leads to new risks in the financial markets. These include rogue foreign providers of risky investment products, an increase in market abuse in capital markets, and the creation of an uneven playing field between domestic and foreign providers of financial products and services. These risks cannot be adequately addressed at the national level and require an international approach. As a result, many new (European) regulations are on the way.