The three European Supervisory Authorities (EBA, EIOPA and ESMA - the ESAs) have published their joint Spring 2025 Update on risks and vulnerabilities in the EU financial system. The update focuses on the challenges associated with geopolitical tensions and cyber risks.
The ESAs warn that increasing geopolitical tensions and rising cyber risks pose significant challenges to financial stability. These challenges include trade conflicts, rapidly changing policies, persistent international conflicts and the prospect of economic fragmentation reshaping global markets, requiring heightened vigilance and adaptability from both supervisors and financial institutions.
Financial institutions must deal with increasing uncertainties, including exposure to international markets, liquidity risks and the changing role of artificial intelligence (AI). Ensuring resilience in the face of these developments is crucial, according to regulators.
Therefore, the ESAs stress the need for proactive risk management, stronger cyber resilience and close monitoring of global financial linkages, including currency risks. As financial markets continue to evolve, international cooperation and regulatory preparedness are essential to maintain stability. Against the backdrop of high geopolitical risks, the ESAs recommend that regulators and financial institutions prepare for continued market volatility, take into account the possible occurrence of liquidity risks and be ready to adapt to adverse developments, including by making adequate provisions.
To better manage cyber and digitization risks, regulators and financial institutions should continue to pursue robust data management, critically assess AI solutions for AI compliance, and support timely implementation of the provisions of the Digital Operational Resilience Act (DORA).
