The European Securities and Markets Authority (ESMA) released its latest Trends, Risks, and Vulnerabilities (TRV) Report today, and its risk assessment is concerning for the outlook of European investors.
The ESMA noted that the EU’s risk categories have remained at a high level. During February of 2018, equity markets saw very high levels of volatility, as a result of a strong market correction that occurred during the month, further reinforcing the authority’s claims.
Variations of Risk in EU
Today’s report has presented findings of risk prevalent in the EU securities markets. The different types of risk are classified into the following categories: Market Risk, Credit Risk, Operational Risk, and Retail Investor Risk.
Market risk has become a factor, as a result of high market asset valuations, as well as geopolitical turmoil that has led to market uncertainty. The most obvious example is the looming Brexit, which will certainly leave its impact on European financial markets in one way or another.
According to the ESMA, credit risk has actually improved as of late, easing from ‘very high’ to ‘high’, based on ESMA assessments. The enhanced levels of credit risk are related to higher credit ratings in several EU Member States, and a generally stronger macroeconomic environment across the EU.
Operational risks are currently mainly associated with cyber concerns, and have maintained stable levels for some time.
Meanwhile, retail investment risks have seemingly increased, as a direct result of the rise in demand for cryptocurrencies, as well as investor participation in ICOs, which are widely recognized as incredibly high-risk propositions, and have been at the center of allegations over potential scams and fraudulent activity.
Recent ESMA Activity
As part of its agenda of lowering risk for retail investors, the ESMA took steps back in December of last year, to prohibit the Binary Options industry in the region, as well as limiting leverage on FX trading to 1:30. The push for the lower leverage has since been met with resistance from the FCA, which publicly contradicted the ESMA plans in a later January statement.
The ESMA has garnered a great deal of respect across the financial sector. CySEC, the regulatory body of Cyprus, which offers licenses to companies offering financial services in Europe, has even aligned its own guidelines with ESMA regulations over the appointment of new management body members.
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