AFM Warns Financial Sector Must Adapt as Risks Begin to Stack & Accelerate

Key Takeaways

• Stacked Risks Are the New Reality: The AFM warns that economic shocks, geopolitical tensions, and technological change are no longer isolated events but overlapping forces that amplify market instability.
• Resilience and Agility Take Center Stage: Financial institutions are being pushed to identify risks faster, maintain stronger buffers, and adapt to scenarios that unfold simultaneously rather than sequentially.
• Foundation Risk Signals Broader Financial Strain: Around 500,000 Dutch homeowners face foundation vulnerabilities, with €11 billion in repair costs highlighting a complex challenge for lenders, policymakers, and the wider financial system.
• AI Introduces Both Efficiency and Opacity: While AI improves pricing and decision-making in capital markets, reduced transparency and increasing autonomy raise risks around volatility, market abuse, and supervision.
• Human Oversight Remains Critical: The AFM stresses that clear accountability, human intervention, and governance structures are essential as AI-driven systems take on a larger role in financial markets.

Deep Dive

The Dutch Authority for the Financial Markets has issued a warning about the state of the global financial environment, arguing that the convergence of economic shocks, geopolitical tensions, and rapid technological change is creating a level of uncertainty that is no longer episodic but structural.

What used to be considered isolated shocks are now arriving together, feeding off one another and accelerating market instability.

“We are dealing with an accumulation of risks, while in the past even one of these would have made us nervous,” said Laura van Geest, Chair of the AFM’s Executive Board. “This has become our new normal: unpredictable, short cyclical and cumulative.”

The AFM’s view is that today’s financial environment is defined less by singular crises and more by compounding ones. Economic volatility, technological change, and geopolitical developments are no longer separate threads, they are increasingly woven together.

Events tied to international tensions, including developments involving Iran, can quickly ripple through energy markets, shift inflation expectations, and alter market behavior in a matter of days. The result is a system where shocks do not just follow one another—they overlap.

That dynamic changes the playbook for both firms and regulators. The AFM argues that resilience now hinges on speed and adaptability. Institutions need to identify risks earlier, maintain stronger buffers, and prepare for scenarios that unfold simultaneously rather than in sequence.

For supervisors, it also means keeping a closer eye on emerging risks and working more closely with European counterparts, particularly as market movements become harder to isolate within national borders.

A Slower-Burning Risk With Real Financial Consequences

Not all risks arrive with the same immediacy. Some build quietly and can be just as disruptive.

One of the more grounded findings in the AFM’s latest work centers on foundation damage in residential housing, an issue that is beginning to take on broader financial significance. The regulator estimates that around 500,000 homeowners in the Netherlands are dealing with vulnerable foundations, with more than 120,000 requiring repairs.

The scale of the problem is significant. Repair costs are estimated at €11 billion, and for many households, the numbers simply do not add up. Most homeowners cannot finance the repairs immediately, and for more than 25,000, taking on additional debt is not considered a responsible option.

It is the kind of issue that sits at the intersection of housing, lending, and long-term risk, one that cannot be addressed by any single part of the financial system. The AFM frames it as a shared challenge for lenders, policymakers, and other stakeholders.

AI Moves Faster Than Oversight

If foundation risk reflects a slow-building pressure, artificial intelligence represents the opposite, a fast-moving force that is already reshaping capital markets.

In its exploratory study, the AFM points to clear benefits. AI systems are improving pricing efficiency and enabling more informed investment decisions. But those gains come with a trade-off.

As systems become more autonomous and self-learning, visibility into how decisions are made begins to fade. That loss of transparency, the AFM warns, could amplify volatility and open the door to new forms of market abuse that are harder to detect.

It also complicates supervision. Regulators are left overseeing systems that can act faster, and with less explainability, than traditional models.

The AFM’s position is not to slow adoption, but to anchor it. Human involvement, the ability to intervene, and clear lines of responsibility remain essential, particularly as decision-making shifts further toward machines.

Stability Looks Different Now

The idea of returning to a stable baseline is increasingly outdated. Instead, stability is being redefined as the ability to operate through ongoing disruption, whether that comes from geopolitical shocks, structural vulnerabilities, or technological change.

For financial institutions, that means resilience is no longer a defensive posture. It is becoming a core capability.

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