“After the crisis is before the crisis! The COVID-19 pandemic had barely been overcome when Russia’s war of aggression against Ukraine triggered massive geopolitical and economic upheavals, which will again prove massive challenges for the global financial markets in the years ahead,” remarked the Executive Board Members of the Austrian Financial Market Authority (FMA), Helmut Ettl and Eduard Müller, in the “Medium-term Risk Analysis 2023 – 2027”, from which the FMA’s priorities for supervision and inspections have been derived for 2023. In particular, high inflation, an abrupt turnaround of interest rates and a slumping phase of the business cycle occurring in parallel are a toxic mixture for the financial economy, with the FMA Executive Board referring to a range of risk warnings issued by stability bodies around the globe. The challenges ahead for Austrian financial service providers are therefore substantial. Ettl and Müller noted that financial service providers are however “relatively well prepared, positioned stably and are well capitalised”; the situation looks a lot better than prior to the Global Financial Crisis of 2008. The latest stress tests has shown that Austrian providers have a sound risk bearing capacity despite the increasing risks to financial market stability.
FMA Executive Board advocates a prudent distribution policy
Although most Austrian financial service providers have earned well in 2022, the FMA’s Executive Board nevertheless advocates a “prudent and sound distribution policy”. “In the medium-term a ‘marked risk asymmetry’ is to be observed, in which there are practically exclusively additional downside risks,“ as Ettl and Müller mention regarding the potential further aggravation of the risk situation, citing a further escalation of the Russia-Ukraine conflict, a new dangerous mutation of the SARS-CoV-2-Virus as well as global supply chain blockades as a result of China’s rigorous anti-COVID policy. Furthermore it is an exceptional situation where almost all global economic regions are simultaneously threatened by a significant slump, which in addition might trigger cumulative reciprocal effects. “In light of the fragile risk situation, to err on the safe side, capital buffers should be strengthened rather than diluted,” remarked Ettl and Müller. Furthermore, significant price corrections cannot be excluded in relation to certain types of assets, whose prices have developed in a divergent manner to the real trend. This might leave deep scars in the balance sheets of financial service providers. In this regard they cited private and commercial residential real estate as well as certain digital financial products as an example.
These medium-term challenges for the real and financial economy will be superimposed with longer-term geopolitical, technological, ecological and societal trends:
- the way towards a new geopolitical order, exacerbated by the prevailing crisis of multilateralism;
- digital transformation and the far-reaching changes that it heralds for the economy and society;
- the struggle against global warming, which requires a global re-orientation of the economy, but where progress is slow;
- changing consumer behaviour, which increasingly renders established protection mechanisms useless;
- the flight away from regulation and supervision, placing the fairness and orderly nature of financial markets in doubt.
Priorities for supervision and inspections 2023
The FMA has derived six thematic areas as priorities for supervision and inspections in 2023 from these trends, challenges and risks:
- Resilience and Stability: strengthening the crisis resilience of supervised financial service providers as well as safeguarding the stability of the Austrian financial market as a whole.
- Digital transformation: exploiting the opportunities arising from digitalisation while simultaneously addressing the associated risks in a consistent manner.
- New business models: accompanying innovative business models in terms of supervision from as early a stage as possible, in order to promote the innovative power of the Austrian financial market, ensuring fair competitive conditions and guaranteeing appropriate consumer protection.
- Collective consumer protection: further development of consumer protection in a rapidly changing environment under the buzzwords: digital transformation, changing consumer behaviour, demographic development, the change in interest rates.
- Sustainability: To support the financial market and all its participants in regulatory and supervisory terms during the changeover to a sustainable economic model.
- A clean financial centre in Austria: safeguarding the orderliness and reputation of Austria as a financial centre at all levels.
The specific instruments, projects and initiatives being used to address these thematic areas are presented in detail in the FMA’s latest publication “Facts and Figures, Trends and Strategies 2023”. The FMA’s “Medium-term Risk Analysis 2023-2027” can also be found in this publication. This publication can be downloaded from the FMA website at:https://www.fma.gv.at/en/publications/facts-and-figures-trends-and-strategies/.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43 (0)676 88 249 516
+43 (0)1 249 59 – 6006