Keeping abreast of a world in a constant state of flux
Although 2002 does not sound that far back in the past, the world has seen huge changes since then. For example, 2008 saw the introduction of the iPhone and today people use their mobile phones all the time to make payments and even place share orders. New financial enterprises have emerged; many are based outside the Netherlands but hold an EU authorisation. Another major evolution has been the broad interest in sustainability across many sections of society. So things have really changed enormously. How does the AFM deal with those changes?
Digitalisation, internationalisation and the drive towards sustainability - these are the three major trends that the AFM believes will dominate the financial markets. The associated developments have already started and are still gathering steam. They are not only affecting the financial markets, but the AFM itself. These trends have already completely overhauled the traditional financial sector. While a company celebrating its centenary would have inspired trust and respect twenty years ago, today old age is no longer necessarily a business asset.
Digitalisation
In addition to creating new opportunities, digitalisation also brings with it a range of risks – all the more so since data have become the core of the business process. Issues such as data quality and privacy have been on the agenda for a while. Another, more recent theme – and one that will become even more important going forward – is concentration risk. For example, for cloud services financial companies have become dependent on a handful of bigtech platforms. They are also increasingly outsourcing their digital business processes, which has made the financial sector even more vulnerable to disruptions at their service providers. At the same time, supervision is becoming more and more complex due to the fragmentation of processes across different parties. Other important aspects in connection with digitalisation include bigtechs that want to provide financial services, and the rise of artificial intelligence (AI).
Internationalisation
Laws and regulations are increasingly developed at the international level. This trend is accompanied by an ever more international playing field for financial companies – and their supervisors. Financial companies increasingly engage in cross-border activities. New providers can establish themselves in the EU country of their choice and then operate freely throughout Europe. These developments call for international cooperation and integration in the field of supervision. The AFM plays an active and prominent role in this regard, driven in part by the wish to retain its risk-based supervisory approach. Incidentally, the impact of internationalisation varies between sub-sectors: the impact is greatest in the capital markets and smallest in the accountancy sector.
Drive towards sustainability
Climate targets will stay high on the social agenda for decades to come. Their high priority is reflected in the rise of products with a sustainable profile. However, without reliable comparable information the risk of greenwashing is never far off. New standards and regulations should help to solve this problem. Consumers can expect to receive a fair and transparent product, and market participants should all meet the same standards. The AFM monitors this. One notable example of the drive towards sustainability at the AFM could be seen in 2021, when the (secondary) market for CO2 emission rights (ICE Endex) – and with it the supervision arrangements – moved from London to Amsterdam.
Want to know more? Trend Monitor
In our annual Trend Monitor we share our vision of developments in the financial markets in relation to our mission. The Monitor offers an in-depth description of the major trends, including a detailed risk analysis for our four key oversight areas:
• financial services • capital markets • asset management • accountancy
Consumers in vulnerable situations
In addition to the three main trends, we identify several other developments that are relevant to our supervision and are subject to intense AF monitoring. For example, while the average level of prosperity has risen, we observe a widening gap between those who are financially well-off (home owners with a permanent job) and those who are not. As a result, more and more consumers are ending up in situations where they are vulnerable, for instance when they work on a flexible contract. At the same time, more and more income aspects – pension, for example – are considered to be their own responsibility. This is why we aim to further improve our understanding of financial vulnerability and conduct studies among specific groups of consumers, for instance.
The Expert Centre
In a context of high-impact changes, it is important for the AFM to keep ahead of the game. Within the AFM, since 2016 the Expert Centre has worked to improve our understanding of the changing world around us and the impact of those changes on our supervision. With a current workforce of 55 divided across 5 teams, the Expert Centre has specific knowledge and competences in a range of fields, including consumer behaviour, conduct and culture, and operational and IT risks. There is good interaction between the Expert Centre and the supervisory practice. The Expert Centre also performs comprehensive risk analyses that help us formulate our supervision priorities; we have published those analyses in our Trend Monitor for the past four years. In addition, the Expert Centre manages the Supervision Academy, which offers a wide range of supervision-related training programmes for AFM employees.
Joining forces to keep abreast of developments
In order to monitor developments, we are intensifying our collaboration with other supervisory authorities, including the DNB and, increasingly, the Dutch DPA and the Netherlands Authority for Consumers and Markets. The need for such collaboration has increased as the boundaries between different areas of supervision are blurring (due in part to the increasing prominence of bigtech companies), and also in view of the GDPR. Likewise, at the international level we are joining forces to keep abreast of developments and formulate effective joint responses.
Discussions with the sector
To really understand new developments and monitor them effectively, we believe it is also important to communicate directly with the sector. Take AI: we like to hear from the sector how they are using this technology and what dilemmas they are facing. On our part, we need to explore the extent of what is possible for us to do and where supplementary laws and regulations are required. Moreover, financial institutions will benefit from opportunities to discuss their dilemmas with the supervisor at an early stage.