Deloitte’s European Centre for Regulatory Strategy has issued its 2020 Financial Markets Regulatory Outlook, which highlights themes that are particularly relevant in the Covid-19 pandemic.
This year’s report has identified four medium-term trends and 10 cross-sector themes of strategic significance, as well as additional themes specific to each of the banking, capital markets, insurance and investment management sectors.
All of the themes are relevant to the financial services sector in the Channel Islands and are on the agenda of both the Guernsey Financial Services Commission and the Jersey Financial Services Commission.
Ranging from good customer outcomes to climate change risk and stress testing, the themes remain relevant to the economy and environment during the coronavirus pandemic.
Cyber resilience
The most urgent priority set out in the report is operational and cyber resilience, which has been thoroughly tested in recent weeks. The move from workplace to home and disaster recovery site has been challenging for some and a true test of resilience.
In terms of cybersecurity, the report says the coming weeks and months will determine whether staff cyber training has been effective, and also test the monitoring capability of regulated businesses.
Deloitte cyber intelligence has tracked a significant uptick in cyber activity since the crisis began and businesses may be more vulnerable due to distracted staff and new working arrangements.
The regulatory cyber focus will be shifting from preparedness to supporting licensees in responding to actual threats and incidents.
Operational monitoring
On the theme of operational resilience, European and local regulators will be monitoring how the operational risk framework has been adapted to remote working environments and how the board of regulated businesses will be receiving timely and effective assurance from the second and third lines of defence.
The report highlights another theme for 2020 – culture, governance and accountability – as particularly relevant in light of the current pandemic. The culture of regulated business will be tested, and the manner in which firms support their staff, clients and communities will be judged by regulators and by governments and the public.
A focus on effective governance over the coming weeks, and a well considered and documented response to the decisions facing businesses, will be crucial.
Another theme identified – good customer outcomes – will also be a key focus in the coming weeks and months.
Stakeholders are expecting financial services businesses to be flexible and understanding in their response to clients facing hardship and financial difficulties. Policymakers, governments and regulators have already set out high expectations in relation to customer outcomes and support.
Positive impacts
Not all of the themes show risk levels increasing, however – some have been positively affected by Covid-related events.
Climate change risk has benefited in many ways over the past weeks and months. And environmental, social and governance (ESG)-themed investments have proved to be more resilient in the recent market downturns.
The impact of national lockdowns on carbon emissions and air pollution has generated staggering improvements across both areas.
• To read the Deloitte 2020 Financial Markets Regulatory Outlook click here