“Companies in the financial sector must be resilient – to both financial and operational risks,” said BaFin President Mark Branson at a press briefing to mark the publication of the report. According to Branson, many institutions in the financial industry are currently reporting strong to very strong profits. But, he warned, these profits should not only benefit shareholders: “Institutions shouldn’t underestimate risk provisioning needs, and, more than ever, companies should be investing in their operational security and stability.”

In some sectors in Germany, a small number of specialised IT service providers serve a large proportion of banks and insurers. That is why this year BaFin is paying particular attention to the risks that emerge from this kind of market concentration.

BaFin has identified a total of seven risks that it considers most capable of jeopardising the financial stability or the integrity of the German financial system. It will pay particularly close attention to these risks in 2024. The report “Risks in BaFin’s Focus” also details the action BaFin is taking to mitigate these risks.

The main risks currently facing the German financial market are:

• Risks arising from significant increases in interest rates
• Risks arising from corrections on the real estate markets
• Risks arising from significant corrections on the international financial markets
• Risks arising from defaults on loans to German companies
• Risks arising from cyberattacks with serious consequences
• Risks arising from inadequate money laundering prevention
• Risks arising from market concentration in the outsourcing of IT services (new)

BaFin has also identified three key trends that pose further risks to the financial system and that will require particularly close attention from both BaFin and the companies under its supervision: sustainability, the digitalisation of the financial industry and geopolitical turmoil.