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Law360, London (September 23, 2020, 2:59 PM BST) -- Businesses in the financial services sector should consider performing stress tests and ensuring their technology systems are safe in the face of a challenging environment, European regulators said in their first assessment of the sector following the outbreak of COVID-19.
The virus has affected the financial sector in the European Union, which has seen substantial outflows from some sectors, and an increase in credit and solvency risks across the board, the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority — collectively known as the European Supervisory Authorities — said Tuesday.
In addition, there has been an increase in the use of information and communication technology, or ICT, alongside the spread of the virus, putting sound ICT and security risk management high on the agenda.
Against this background, the agencies recommended national competent authorities, financial institutions and market participants take a number of measures.
"Financial institutions and supervisors should take into account various scenarios and, for example, perform stress testing or sensitivity analyses in order to map the impact of potential shocks," said the authorities, which also urged businesses to carefully manage their ICT risks, including when outsourcing activities.
Financial institutions should also ensure that the assessment of their capital positions is forward-looking, and banks should use "the flexibility embedded in the existing regulatory framework," including using capital buffers to absorb losses which could ensure continued lending to the economy, the EU supervisors found.
"Financial institutions should also ensure to be well-prepared for any disruptions they and their clients may face at the end of the U.K.'s transition period agreed in the context of the U.K. withdrawal from the EU," the assessment said.
Since the outbreak of the pandemic, regulators have stepped in to work with industry to help support customers and businesses get through.
The EIOPA in July said European insurance companies should offer remedial action to customers regarding insurance products that have been affected by COVID-19, for example.
--Editing by Rebecca Flanagan.
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