High Risks Linger for European Securities Markets and Investors: ESMA

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 Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term, 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 Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term, 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.