DTCC: Brexit is a systematic risk to industry
12 December 2018 London
Image: Shutterstock
The slower than expected negotiating progress between the UK and the EU, and the ongoing uncertainty of outcome, has positioned Brexit as a top systemic risk concern for 2019, according to a new survey published by The Depository Trust & Clearing Corporation (DTCC).
Close to half of the survey’s respondents (49 percent) cited concerns around the significant risks attributed to Brexit as one of the top five risks for the industry in the coming year, as the March 2019 Brexit date quickly approaches.
The Brexit ranking represents an 11 percent increase over last year’s survey results, making it the most significant year-over-year change in the findings.
Andrew Douglas, DTCC’s CEO of DDRL and managing director of its government relations for Europe, Middle East and Africa and Asia, said: “As we approach the March 2019 date, firms remain concerned about a number of factors associated with Brexit.”
“These include uncertainty about the nature of the exit agreement and subsequent trade agreements, uncertainty as to whether there will be a transition period or not and consequently uncertainty about the impact that Brexit will have on both the UK and the EU economies.”
He added: “We see firms actioning their plans to deal with Brexit without a clear understanding of what a post-Brexit Europe will actually look like.”
The survey found that, aside from Brexit, cybersecurity and other geopolitical risks also continue to dominate the risk landscape.
Cyber risk remained the number one threat to the financial industry, with more than a third of respondents (37 percent) citing it as the most significant risk and 69 percent ranking it within the top five risks.
Stephen Scharf, managing director and chief security officer at DTCC, said: “The increase in concern around fintech’s impact on systemic risk demonstrates a growing awareness of the
potential risk and highlights the need to evaluate both risks and rewards associated with fintech
initiatives.”
He added: “DTCC embraces the promise that fintech innovations hold to further mitigate risk
and reduce post-trade costs. But as the industry continues to adopt fintech innovations,
like blockchain, artificial intelligence and cloud solutions, we must ensure that those innovations do not jeopardise the safety and security of the current global financial marketplace.”
Geopolitical risk, including risks in areas such as the Middle East, China and in emerging markets, maintained its position as the second most frequently cited threat to the industry, with 55 percent of respondents including it in their top five risks for 2019.
Excessive global debt rose in importance and was cited by 28 percent of respondents within their top five risks.
Respondents highlighted the impact of global growth on increased debt levels as well as how changes in central bank monetary policies and quantitative easing programmes could affect large debt balances.
Fintech risk, along with the potential impact of economic slowdowns across all regions, also increased in importance with respondents.
Michael Leibrock, chief systemic risk officer at DTCC, commented: “The broad perspective of these survey results shows that while economic indicators continue to appear strong, pockets of weakness are starting to appear across numerous components of the financial system as geographic flashpoints continue to materialise and intensify.”
He added: “It is critical that firms continue to remain vigilant to anticipate and prepare for not only these emerging risks, but the potential cascading effects that may arise from an increasingly interconnected financial system.”
DTCC has conducted Systemic Risk Barometer surveys across the global financial services industry since 2013, with the last survey published in December 2017.
Close to half of the survey’s respondents (49 percent) cited concerns around the significant risks attributed to Brexit as one of the top five risks for the industry in the coming year, as the March 2019 Brexit date quickly approaches.
The Brexit ranking represents an 11 percent increase over last year’s survey results, making it the most significant year-over-year change in the findings.
Andrew Douglas, DTCC’s CEO of DDRL and managing director of its government relations for Europe, Middle East and Africa and Asia, said: “As we approach the March 2019 date, firms remain concerned about a number of factors associated with Brexit.”
“These include uncertainty about the nature of the exit agreement and subsequent trade agreements, uncertainty as to whether there will be a transition period or not and consequently uncertainty about the impact that Brexit will have on both the UK and the EU economies.”
He added: “We see firms actioning their plans to deal with Brexit without a clear understanding of what a post-Brexit Europe will actually look like.”
The survey found that, aside from Brexit, cybersecurity and other geopolitical risks also continue to dominate the risk landscape.
Cyber risk remained the number one threat to the financial industry, with more than a third of respondents (37 percent) citing it as the most significant risk and 69 percent ranking it within the top five risks.
Stephen Scharf, managing director and chief security officer at DTCC, said: “The increase in concern around fintech’s impact on systemic risk demonstrates a growing awareness of the
potential risk and highlights the need to evaluate both risks and rewards associated with fintech
initiatives.”
He added: “DTCC embraces the promise that fintech innovations hold to further mitigate risk
and reduce post-trade costs. But as the industry continues to adopt fintech innovations,
like blockchain, artificial intelligence and cloud solutions, we must ensure that those innovations do not jeopardise the safety and security of the current global financial marketplace.”
Geopolitical risk, including risks in areas such as the Middle East, China and in emerging markets, maintained its position as the second most frequently cited threat to the industry, with 55 percent of respondents including it in their top five risks for 2019.
Excessive global debt rose in importance and was cited by 28 percent of respondents within their top five risks.
Respondents highlighted the impact of global growth on increased debt levels as well as how changes in central bank monetary policies and quantitative easing programmes could affect large debt balances.
Fintech risk, along with the potential impact of economic slowdowns across all regions, also increased in importance with respondents.
Michael Leibrock, chief systemic risk officer at DTCC, commented: “The broad perspective of these survey results shows that while economic indicators continue to appear strong, pockets of weakness are starting to appear across numerous components of the financial system as geographic flashpoints continue to materialise and intensify.”
He added: “It is critical that firms continue to remain vigilant to anticipate and prepare for not only these emerging risks, but the potential cascading effects that may arise from an increasingly interconnected financial system.”
DTCC has conducted Systemic Risk Barometer surveys across the global financial services industry since 2013, with the last survey published in December 2017.
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