French financial supervisor to focus on climate and cyber risks in 2024

French insurers and wider financial institutions will find their approach to cyber and climate risk identification, prevention and management strategies under closer scrutiny in 2024 from the French Prudential Control and Resolution Authority (ACPR).

ACPR will carry out a sector-wide stress test of the insurance sector to climate risks this year, as it did in 2023. This will focus on the ability of insurers to deal with the risks and question the insurability and reinsurance of climate-related risks.

The supervisor will also keep a close eye on the modelling and reserving of non-life insurers as inflation continues to bite, and upgrade its efforts to tackle greenwashing claims.

“In 2023, French banks and insurance companies showed themselves to be resilient in the face of episodes of banking crises and various macroeconomic and geopolitical shocks. Our work programme aims to maintain this solidity through increased vigilance on all risks weighing on the financial system,” said the supervisor.

“Among the priorities of our roadmap, in addition to this more cyclical aspect, are dimensions linked to the structural transformations that the financial sector is experiencing, such as the management of cyber and climate risks. As such, the integration of banks’ transition plans into prudential regulation and supervision is one of our workhorses,” said Nathalie Aufauvre, secretary general of the ACPR.

The ACPR said the management of interest rate risk and asset/liability duration gaps will always be “closely monitored” in the insurance sector.

“In non-life insurance, the ACPR will focus on taking inflation into account in modelling commitments, as well as the profitability of organisations,” added the supervisor.

Given the continued difficult global economic situation, the ACPR said that it will also keep a close eye on credit risks faced by banks and insurers.

“In the insurance sector, vigilance will focus on the organisations most exposed to the economic situation, particularly in the surety sector (credit insurance, completion guarantees) as well as the health and welfare sectors, which could be affected by a reduction in contributions,” it said.

ACPR said that it will play its full part in the global regulatory effort to support the transition to net zero.

“The authority’s teams will continue to monitor climate commitments published by financial institutions within the framework of the energy-Climate law and the SFDR (Sustainable Finance Disclosure Regulation),” it said.

“The year 2024 will be marked by the results of the second climate stress test exercise, dedicated to insurance organisations, and the publication of work on their governance of this risk. ACPR experts will also contribute to international work on climate change and biodiversity,” added the supervisor.

Cyber and the evolution of AI will also be a core focus this year, continued the ACPR.

It said that cloud computing and open banking are considered critical. It will study the costs and benefits from the digital transformation of information systems, as well as the operational risks linked to applications using artificial intelligence and blockchain.

“Cyber risk and the security of information systems will continue to be the subject of sustained monitoring in a context of sophistication and increase in attacks affecting the financial system,” said the ACPR.

On greenwashing it said: “As part of the fight against greenwashing, ACPR teams will monitor the integration of ‘ESG’ (environmental, social and governance) preferences when selling financial products and the use of sustainable arguments in advertising.”