the turn of the year is a time for reflection on many things, not least banking supervision, and for prioritising the tasks ahead. What lies in store in 2020? What can banks expect from regulators and supervisors? And what will supervisors be asking of credit institutions?

After last year saw the Basel Committee, the European Commission, the European Banking Authority (EBA) and the Single Supervisory Mechanism (SSM) under new leadership stake out the broad parameters of their future agendas, I dare say that 2020 will be more a year of consolidation and continuation in the banking supervision space. Banking sectors in Europe and Germany currently appear stable, for the most part, and at the time of writing, there are no signs of severe turbulence brewing in the financial sector. That said, the interest rate environment and the need to embrace digital technologies will continue to present a stiff challenge for banks.

Countless global, European and national reforms show that the lessons have been learned from the financial crisis. Banking supervisors can now turn their attention to fresh strategic topics. The year 2020 will be all about looking more closely at the transformative impact of digital innovation on banking business, boosting the efficiency and effectiveness of supervisory activities, and ensuring that the European economy on the continent can get the funding it needs after Brexit goes through. In this regard, supervisors are as committed as ever to open financial markets, international standards, and to market and technology neutrality in everything they do.

What have institutions and regulators put on their “to do” lists for the new year?

Now that the Basel Committee has wrapped up its post-crisis regulatory reforms, the time has come to explore the impact of the individual reform elements, but also the way they interact, to see what can be learned. The Financial Stability Board’s evaluation process plays a key role in this regard. Other regulatory initiatives, such as those in the fields of market risk and disclosure, will still be on the agenda in 2020. But at the same time, the Basel Committee will be looking more closely at new risks. One of these is the much-debated topic of crypto-assets, whose prudential treatment was recently the subject of a consultative document. Other agenda items which go under the heading of financial technology (fintech) include the regulatory treatment of outsourced services or the use of artificial intelligence. The Basel Committee intends to devote greater attention to sustainability and climate risks, and that is a welcome sign.

At the European level, the new European Commission has begun its work. If I were asked to summarise the key projects for the banking and financial market, I would use the terms stable integration, digitalisation and sustainability. The direction was mapped out by the proposal for a European Green Deal. Banking supervisors will be keen to see the Commission’s proposal for implementing the package of reforms finalising Basel III, which is scheduled for the first half of the year. On this score, we will continue to push for Basel-compliant implementation that safeguards stability and resilience in the banking sector. At the same time, we will be looking for areas during implementation where European idiosyncrasies can be taken on board.

The road ahead for the banking union will likewise continue to be a talking point in Brussels in 2020. We stand by our view that the gradual creation of a European deposit guarantee scheme will have to be flanked by a further reduction of non-performing loans and by recognition on banks’ balance sheets of the risks presented by government bond holdings.

The withdrawal of the United Kingdom, and thus of London as a financial centre, from the EU means the continent now has to mould its fragmented financial markets into an EU financial centre with global clout. Once Brexit goes through, the European financial market still needs to be in a position to supply the real economy with the financial products it requires and make sure it can tap into global financial flows. Federal Finance Minister Olaf Scholz has also been quoted as saying that Europe needs this kind of "financial sovereignty”. This calls for bold steps to make the capital markets union a reality and high-performance digital financial infrastructure that allows tokens and blockchain technology to be embraced across Europe.

On a related note, there is a need to deepen and upgrade Europe’s single market for financial technologies. This will mean establishing a legal regime for crypto-assets (including stablecoins) and rolling out standards for the use of artificial intelligence or the prudential treatment of cloud solutions. Banks are encouraged to rise to the challenges of the new digital era.

The road ahead is also in the sights of Europe’s Single Supervisory Mechanism (SSM). Political and economic risks in Europe, business model sustainability, and cybercrime and IT shortcomings are just some of the key risks it has identified for 2020.

Needless to say, though, many of these risks are just as much an issue for the less significant institutions supervised directly by BaFin and the Bundesbank. This is why the new year will see us expand on our examinations of banks’ general business organisation and risk management by stepping up our on-site inspections of IT-related matters and risk adequacy. Market discipline in loan pricing will be a major item on our agenda, and we will particularly be pushing for a risk-appropriate approach to pricing. The new year will also see a number of procedural changes. For one thing, our comprehensive supervisory review and evaluation process (SREP) of a bank will, for the first time, be based on harmonised European standards applicable across all banks. This marks another step towards improved supervision across Europe.

Supervisors will be pressing institutions in 2020 to plan for the future and turn their attention above all to the challenges presented by digitalisation. We will be expecting no less from ourselves. Greater use of innovative supervisory technology will make supervision more efficient and more effective. Harnessing the analytical capabilities offered by the likes of machine learning and big data, for instance, will help us achieve this goal. Together with BaFin, we are planning to roll out further projects this year and achieve deeper integration of these supervisory activities at the European and global level.

The year 2020 kicks off a new decade in the field of supervision. As pressing as day-to-day matters can sometimes be, it would be wrong to lose sight of medium and long-term objectives. Changes in multinational cooperation, the impact of digital transformation, and the new drive to embrace sustainability look set to remould banking and finance. The foundations for what lies ahead will be laid now in 2020, the first year of the new decade.