A new systemic risk survey from the DTCC has shown that almost half of respondents believe Brexit will pose a risk to the broader economy, though concerns about cyber risk and regulatory impact are lessening.
The Brexit ranking represents an 11% increase from 2017’s survey results, making it the most significant year-over-year change in the findings from the post-trade market infrastructure provider.
While cyber risk is still the main concern for participants in the research, only 69% believe it is a key concern for the industry down from 78% last year. The same trend occurred with regulatory impact which almost halved from 45% in 2017, to 26% in 2018.
“As we approach the March 2019 date, firms remain concerned about a number of factors associated with Brexit,” said Andrew Douglas, CEO, DDRL and managing director, government relations, EMEA/Asia, at the DTCC.
“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. We see firms actioning their plans to deal with Brexit without a clear understanding of what a post-Brexit Europe will actually look like.”
First launched in 2013, the DTCC Systemic Risk Barometer Survey serves as an annual pulse check to monitor existing and emerging risks that may impact the safety, resiliency and stability of the global financial system. It is designed to help identify trends and foster industry-wide dialogue on potential threats to financial stability.
Elsewhere, geopolitical risk, including concerns 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% of respondents including it.
Excessive global debt also rose in importance and was cited by 28% of respondents within their top five risks. According to the DTCC, respondents highlighted the impact of global growth on increased debt levels as well as how changes in central bank monetary policies and quantitative easing (QE) programs could affect large debt balances.
“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 flash points continue to materialise and intensify,” stated Michael Leibrock, DTCC’s chief systemic risk officer. “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.”