Joint Committee of the ESAs -Autumn 2021

EXECUTIVE SUMMARY AND POLICY ACTIONS

After over a year since the COVID-19 pandemic started, the financial sector has largely proved resilient in the face of its severe economic impact. A range of fiscal, monetary and prudential response measures as well as the availability of capital buffers have been essential in dampening the impact of the crisis. As the recovery begins, the appropriate phasing out of exceptional crisis measures plays a key role. Despite the positive outlook, the expectations for economic recovery remain uncertain and uneven across member states. Vulnerabilities in the financial sector are increasing, not least because of side effects of the crisis measures, such as increasing debt levels and upward pressure on asset prices. Also, expectations of inflation- and yield growth, as well as increased investor risk-taking and financial interconnectedness issues, might put additional pressure on the financial system. Next to economic vulnerabilities, the financial sector is also increasingly exposed to cyber risk and informationand communication technology (ICT) related vulnerabilities. Financial institutions have to rapidly adapt their technical infrastructure in response to the pandemic, and the crisis has acted as a catalyst for digital transformation more generally. The reliance of the financial system on technology and the scope for cyber vulnerabilities have further increased. The financial sector has been hit by cyber-attacks more often than other sectors, while across the digital economy cyber-criminals are developing new techniques to exploit vulnerabilities. In light of the above-mentioned risks and uncertainties, the Joint Committee advises the ESAs, national competent authorities, financial institutions and market participants to take the following policy actions:

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