The Central Bank of Ireland (CBI) published its first Securities Markets Risk Outlook Report last week. The report outlines key conduct risks to markets and sets out actions firms should take in order to identify, mitigate and manage those risks.
‘External shocks, the transition to a greener securities market, misconduct risks and increasing complexity are identified as key areas that firms must manage,’ the CBI said. ‘Firms must ensure meaningful transparency, robust governance arrangements and enhance data quality.’
The Report also outlines the CBI’s supervisory priorities for markets in 2021. After a difficult year, the CBI is honing in on a number of key areas that firms need to address including:
- Impact of external shocks: firms are expected to stress-test their operations and plan for shocks, including those arising from COVID-19 and Brexit, based on plausible worst-case scenarios.
- The migration to a greener securities market: by financing initiatives and trends aimed at stemming the climate crisis, sustainable finance can play a key role in ensuring that securities markets aid a successful transition to greener economic activities.
- Increasing complexity: firms must take appropriate steps to manage the increasing complexity and fragmentation in securities markets.
- Ensuring meaningful transparency: it is essential that investors and market participants can make informed decisions based on available information and reliable pricing.
- Increased use of indices: firms must ensure they understand the risks and implications and be transparent with the market on their use.
- Misconduct risk: firms must identify, mitigate and manage misconduct risk, with a particular focus on the risk of market abuse.
- Governance: governance arrangements must be fit for purpose and properly resourced, including as businesses expand or change.
- Data quality: firms must take steps to improve the quality of the data used in their business and reported to the Central Bank.
In addition, the CBI has planned a number of work items related to the Risk Outlook Report, including an industry-wide review of compliance within the Market Abuse Regulation. It will also continue to work with ESMA to other EU regulators to progress Common Supervisory Actions in relation to UCITS, including liquidity management and costs.
Colm Kincaid, Director of Securities and Markets Supervision, concluded that, ‘firms can expect us to challenge them on these expectations throughout 2021 and beyond, underpinned by the detailed rulebook that is in place and the range of powers available to us to enforce that rulebook.’
Expect to see further focus on data quality in the coming year, too. From our recent discussions with market participants, it’s become increasingly clear that firms are looking for more open cloud platforms that can manage data first and foremost.
Once data silos are eliminated, risk teams can create rules, risk metrics and reports on top of a solid foundation. Automated data management also gives solution providers the ability to offeri# a flexible platform for risk management, regulatory reporting and reconciliation.
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