The Dutch Authority for the Financial Markets (AFM) has published a report, “Thinking in scenarios in capital markets”, calling on market participants, policymakers and supervisors to actively adopt scenario thinking as a core tool for supervision, strategy and risk management in increasingly interconnected capital markets. The AFM argues that system risk is rising as capital markets become more complex and interdependent, with stress often emerging from collective behaviour and shared dependencies rather than a single point of failure. It points to shocks such as the COVID-19 episode and the London Metal Exchange nickel incident as examples of how quickly apparently robust systems can come under pressure. While traditional, more static approaches to oversight and risk frameworks remain useful, the AFM says they are insufficient in a less predictable environment and that scenario thinking can help identify hidden vulnerabilities, illustrated by an example scenario combining a loss of confidence in the US dollar, cyberattacks and stablecoin-related risks that could compound and strain European market infrastructure. Next steps include engagement with the sector on which scenarios the market should prepare for, alongside the AFM’s call for European supervision that takes a system-wide view.

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