Financial Crime World

Swiss Financial Watchdog Identifies Nine Significant Risks for Financial Sector

The Swiss Financial Market Supervisory Authority (FINMA) has released its 2023 Risk Monitor, highlighting nine key risks threatening the country’s financial institutions. In a move that signals increased vigilance, FINMA has added two new risks to the list: Liquidity and Funding, as well as Outsourcing of Business Activities.

Key Risks Fuelled by Macroeconomic Uncertainties

According to the report, many of these principal risks are fueled by macroeconomic uncertainties, including:

  • Ongoing geopolitical tensions
  • Regional conflicts
  • High inflation
  • Rising interest rates
  • Energy costs

The collapse of several American regional banks in March 2023 and uncertainty surrounding Credit Suisse has also contributed to banking sector stress globally.

FINMA’s Risk Monitor: Nine Main Risks for the Financial Sector

FINMA’s Risk Monitor identifies nine main risks for the entire financial sector, including:

Existing Risks (7)

  • Interest rate risks
  • Credit risks associated with mortgages and other loans
  • Credit spread risks
  • Cyberattack risks
  • Money laundering risks
  • Impediments to cross-border market access

New Additions (2)

  • Liquidity and Funding: considered significant enough to warrant inclusion in the report.
  • Outsourcing of Business Activities: FINMA sees this trend as a potential risk for financial institutions.

The Swiss financial regulator will continue to focus its supervisory efforts on specific risks arising from the merger of two large banks, while also monitoring trends with long-term potential impact on the sector. One such trend is the Increasing Use of Artificial Intelligence (AI) in the financial market.

Challenges and Concerns

  • AI decision-making responsibility
  • Reliability
  • Transparency
  • Explainability
  • Ensuring equal treatment of financial market clients

FINMA expects supervised institutions to address these risks accordingly and will review their use of AI using a risk-based approach and principle of proportionality. The authority will also continue to monitor international developments and engage with relevant stakeholders.