EU supervisors flag external dependencies, cyber threats and private credit risks

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EU supervisors flag risks

Highlights

EU Supervisory Authorities' September 2026 update identifies external dependencies, emerging technologies and private credit as primary systemic risks for the EU financial sector.
Reliance on non-EU ICT providers and infrastructure, especially for banks and investment funds with substantial U.S. and non-EEA exposures, increases vulnerability to geopolitical shocks and regulatory divergence.
Rapid private credit market growth in the EU, coupled with limited transparency and stronger financial system links, raises stress risks from valuation uncertainty, leverage and liquidity mismatches.

Autumn 2026 risk update highlights key vulnerabilities

As reported by ESMA, citing the European Supervisory Authorities, the Autumn 2026 Joint Committee update on risks and vulnerabilities identifies external dependencies, emerging technologies and private credit as the main pressure points for the EU financial system. The findings were presented to the Financial Stability Table of the EU's Economic and Financial Committee on 10 September 2026.

The ESAs, bringing together the EBA, EIOPA and ESMA, say reliance on non-EU providers and infrastructure could magnify the impact of geopolitical shocks and operational disruption. They single out dependence on ICT service providers outside the European Economic Area as a particular concern, while warning that increasingly capable AI models are raising cyber risks across the sector.

The update also points to vulnerabilities in private credit. While the market remains relatively small in the EU, the ESAs say its rapid growth, limited transparency and stronger links with the wider financial system could create stress risks, including through valuation uncertainty, leverage and liquidity mismatches in private credit funds.

Resilience persists as cross-border and technology risks grow

Despite those vulnerabilities, the EU financial system remains resilient, according to the update. Investment funds withstand volatile market conditions, insurers and pension providers maintain strong fundamentals, and European banks continue to operate with solid profitability, high capital ratios and low levels of non-performing loans, although some deterioration is expected in portfolios such as commercial real estate and small and medium-sized enterprises.

The ESAs say external dependencies run across the financial system. Investment funds hold substantial U.S. exposures, especially equity UCITS and alternative investment funds, while banks still rely heavily on non-EU ICT providers and payment systems and face funding gaps in some non-EU currencies, mainly USD, GBP and CHF. In market infrastructure, clearing, repo and credit ratings activities also remain largely intermediated by non-EU entities.

The authorities warn that this reliance can increase exposure to other regulatory regimes and heighten vulnerability to geopolitical events outside the EU. They add that rapid advances in AI and quantum computing could strengthen fraud detection and compliance tools but also undermine existing cryptography and make cyberattacks harder to contain.

The Joint Committee calls on supervisors and market participants to strengthen crisis preparedness, resolution coordination and adaptable regulation. It also urges more proactive monitoring of exposures to non-EEA entities, dependencies on non-EU service providers, and risks linked to AI and quantum computing.

In our earlier article on mounting stress in U.S. private credit defaults, we examined how a rising share of borrowers is hitting maturities amid higher rates and fewer exit options. We noted that more “soft” restructurings—such as payment-in-kind features and maturity extensions—are increasingly being treated as defaults, pointing to pressures that can be managed privately rather than fully visible in public markets.

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