Toronto Centre: Financial authorities and firms need to adapt to the operational constraints and heightened risks resulting from COVID-19

28 September 2020 — Cosmin CONCEATU
Toronto Centre published a guide containing a framework for all financial supervisors and regulators to address the immediate and the longer-term consequences of COVID-19 on their financial sectors.

Read the full report here

This guide focuses not only on the current challenges - adjusting to supervisory staff working from home, addressing the heightened risks facing supervised firms, and the impacts of COVID-19 on financial inclusion - but also on how supervisors, in all sectors of financial services, will need to respond in the longer-term to the emerging new normal. The lessons learned from this pandemic could also be instructive to address future crises such as climate change.

Some of the facts found by Toronto Centre published in this paper are:
  • Supervisory authorities and supervised firms need to adapt to the operational constraints and heightened risks resulting from COVID-19.
  • Heightened credit risks and the potential for a longer-term deterioration of credit quality should be constantly re-assessed by supervisory authorities and supervised firms, given the broad-based and continuing impact of COVID-19 on most economic activities.
  • Insurance and pension fund supervisors should assess the impact from this health crisis, amid a potentially long-term low interest rate environment, on the continuing viability of their supervised firms.
  • Securities supervisors need to focus on maintaining orderly and functional markets, together with proper conduct oversight for all participants, particularly the retail segment, amidst increased market volatility and reduced market liquidity.
  • Strong corporate governance in supervised firms is critical to provide assurance to supervisors on the ability of supervised firms to navigate the numerous challenges raised by COVID-19, which may be long-lasting and not easily reversed.
  • The COVID-19 pandemic has heightened the urgency for supervisors to meet the challenges of underdeveloped digital financial services and infrastructure, not least given the disproportionate impact on the poor, particularly women, who are financially excluded.
  • Supervisory authorities should adapt their supervision to the immediate constraints imposed by COVID-19, while planning for the longer-term impacts on supervised firms.
  • Supervising the new normal requires supervisory authorities to plan for, and react to, the constantly changing environment, and to identify the varied impacts on individual supervised firms, while adapting their own supervisory practices with the help of technology.
  • Supervisory authorities need to focus on capacity building so that their supervisors have the knowledge, skills, and experience to make good critical judgements.


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