On 29 October 2018, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) published a report setting out the most important trends and risks in the financial sector (the Report).
The primary purpose of the Report is to provide substantive background, depth and coherence in relation to relevant supervisory issues. In the Report, the AFM focuses on three particular trends:
- Political uncertainty: According to the AFM, Brexit is the largest source of political uncertainty for the financial sector in Europe. In particular the cliff-edge-scenario, better known as a “hard Brexit” is expected to have disruptive effects on the financial sector. In case of a hard Brexit, the Report states that UK parties will lose their market access to the EU and vice versa. It adds that this will lead to serious disruption in securities transactions and a restriction of cross-border services. The AFM notes that not all financial undertakings in the Netherlands are sufficiently prepared for a hard Brexit, which may result in non-compliance with licensing requirements (for example if services have been outsourced to UK institutions). The AFM calls on parties to prepare for a hard Brexit scenario.
The AFM also points out that it has had over 150 conversations with parties interested in moving their operations to the Netherlands. The AFM expects that approximately 30 to 40 per cent of the European trade in financial instruments will be taking place from the Netherlands, making the Netherlands the centre for financial trading within the EU27.
Other trends related to political uncertainty mentioned in the Report are the growing polarisation in EU Member States, uncertainty around monetary policies and recent trade wars involving the US, China and the EU.
- Digitalisation of the financial sector: Another important trend identified by the AFM concerns the growth of technological innovations in all segments of the financial markets. The Report addresses specific developments involving banks, insurers, asset managers, capital markets and Fintech. The Report also sets out the implications of these developments, which includes the increasing complexity of algorithms, the growth in cybercrimes, emerging new players in the financial sector, gamification digital interconnectedness and difficulties in controlling (the availability of) insider knowledge.
- Transition to a sustainable society and economy: The third trend concerns the growing attention for sustainability and the integration thereof in the financial sector (e.g. the use of Environmental, Social and Governance criteria, growing markets for green bonds and financial products with sustainability quality marks.
The AFM will be translating these trends and risks in concrete supervisory activities. These will be presented in its supervisory agenda for 2019 (which is expected to be published in January).
View the Report (Dutch only), 29 October 2018.