The past year has been a time of consolidation for many in risk management. The flurry of regulatory compliance required at the end of 2017 – the cliff edge that was Europe’s second Markets in financial instruments directive (Mifid II) – resulted in many market participants seeking a refresh of their systems and suppliers.
However, a heightened focus on cybersecurity has become a greater priority as systems move online and cyber criminals gain in sophistication.
Respondents to a Deloitte study indicated that 67 percent of the market considers cyber risk as a top priority for their future strategies, while only half of those asked said they were confident in their companies ability to handle it.
With the passing of the Emir Refit Regulation in June 2019, reporting obligations, clearing obligations and margin requirements will all see a phased change going into 2020. It also requires that the European Banking Authority (EBA), in cooperation with the other European Supervisory Authorities (ESAs) create draft regulatory technical standards to come into play in the middle of 2020.
The past year has also seen geopolitical risk take centre stage. Aggressive trade negotiations between the US and China has led to markets across the world stuttering, with the International Monetary Fund lowering expected global growth for 2019 from 3.6 percent to 3.3 percent. Global economic growth is projected to ease to a weaker-than-expected 2.6 percent in 2019, according to the World Bank, while growth among emerging market and developing economies is projected to fall to a four-year low of four percent this year.
Economic risk remains at the forefront of the minds of the risk management professional. While negative interest rates have been ruled out by figures such as Mark Carney, governor of the Bank of England, interest rate risk remains a threat as global markets head towards a likely downturn.
Uncertainty also looms over the final terms for the departure of the UK from the European Union, while concerns grow that market conditions are ripe for another period of financial instability.
German GDP shrank twice in 2018 and 2019, and recovered by only 0.1 percent in Q2 2019, despite a €50bn injection into the country’s economy by finance minister Olaf Scholz. Two quarters of negative growth are expected for one of the EU’s cornerstone nations.
Chinese industrial production is at a 30-year low, at 4.8 percent, while in Japan the country’s budget deficit was 3.7 percent in 2018 and is expected to widen further. The country plans VAT increases, but its growth has been in steady decline since 2017 and fell by six percentage points to 1.1 percent in 2018.
A collection of other nations are currently in recession or experiencing contractions. The US blockade of Iran has meant it has had difficulty selling its oil across financial markets, while Argentina’s debts weigh it down and Venezuela endures a political crisis.
Many firms now realise that coming out on top in today’s complex markets means combining regulatory expectations with long-term strategic objectives. Yet more work is required to create an approach which impacts at all levels of a firm and creates meaningful change.