The three European Supervisory Authorities (European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority – the ESAs) published their Spring 2025 Joint Committee update on risks and vulnerabilities in the EU financial system, which focuses on the challenges linked to geopolitical tensions and cyber risks.
The ESAs warn that growing geopolitical tensions and rising cyber risks present significant challenges to financial stability. These include trade disputes, rapidly shifting policies, ongoing international conflicts and the prospect of economic fragmentation which are reshaping global markets, requiring heightened vigilance and adaptability from supervisors and financial entities alike.
Financial institutions must navigate growing uncertainties, including exposure to international markets, liquidity risks and the evolving role of artificial intelligence (AI). Ensuring resilience in the face of these developments is crucial.
The ESAs, therefore, emphasise the need for proactive risk management, stronger cyber resilience and a close monitoring of global financial linkages, including currency risks. As financial markets continue to evolve, international cooperation and regulatory preparedness will be key to maintaining stability. Against a background of high geopolitical risks, the ESAs recommend that supervisors and financial entities prepare for continued market volatility, consider the potential materialization of liquidity risks and stand ready to adapt to adverse developments, including by provisioning adequately.
To better manage cyber and digitalization risks, supervisors and financial institutions should continue to strive for robust data governance, critically assess AI solutions and their compliance with the AI Act, and support the timely implementation of the Digital Operational Resilience Act’s provisions.