The European Securities and Markets Authority (ESMA) on Tuesday released its latest Trends, Risks, and Vulnerabilities (TRV) report, painting a concerning picture regarding its risk assessment for the outlook of European investors.
The ESMA report notes 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.
Various levels of risk
Today’s report presents findings of prevalent risk in the EU’s 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 report, 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 in December of last year to outlaw the Binary Options industry in the region under its jurisdiction, as well as limiting leverage on FX trading to 1:30. The push for 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.