The Bank of England released its biannual Financial Stability Report, and there was plenty for GRC professionals to sink their teeth into. Here are six key takeaways.
- UK financial system remains resilient: Overall, the BOE is happy with the state of the UK economy. The UK financial system remains resilient due to several factors, including well-capitalized banks, robust regulatory frameworks, and effective risk management practices. The country’s Financial Policy Committee (FPC) has taken action to ensure the system can absorb shocks and continue to serve UK households and businesses.
- Households and corporates broadly resilient: UK household and corporate borrowers have been broadly resilient, although many remain under pressure. Compliance professionals would be wise to monitor the share of households with high mortgage debt-servicing ratios and corporates with refinancing risks.
- UK banks well-capitalized: The UK banking system is well-capitalized, with banks maintaining strong liquidity positions. Risk managers will be keeping tabs on banks’ ability to manage funding and liquidity as central banks normalize their balance sheets.
- Vulnerabilities in market-based finance: The report identifies important vulnerabilities that could amplify a sharp repricing in financial markets. Risks posed by liquidity mismatches, concentrated leverage, and insufficient market capacity to intermediate in stress remain.
- Private equity sector faces challenges: The private equity sector faces challenges in the higher rate environment, including refinancing risk and increased drag on performance. Compliance professionals should monitor vulnerabilities arising from high leverage, opacity around valuations, and interconnections with riskier credit markets.
- Increased demand for governance, risk, and compliance roles: As the financial system navigates the risks and vulnerabilities highlighted in the report, MBK Search anticipates an increased demand for professionals in these roles across the UK, particularly among private investment companies. The arrival of a new government doesn’t seem to have spooked markets, but with change comes new risks.
