February 28, 2019

ESMA published its report on the trends, risks, and vulnerabilities in EU. The report reveals that overall risk levels for EU financial markets remained stable but at high levels for most risk categories—particularly liquidity, market contagion, and credit risk. Securities markets experienced several episodes of short-term volatility and equity markets suffered sharp declines from October onward, erasing all the gains made in the first half of 2018.

In addition to the Brexit-related political uncertainty in EU, volatility on equity and sovereign bond markets increased in the fourth quarter of 2018, equity prices continued to decrease, repricing on corporate and sovereign bond markets continued, and regional developments led to localized sell-offs and increased short-selling activity. Market risk thus remains very high. Outlook for liquidity, contagion, and credit risks remains unchanged. Operational risk remains elevated with a negative outlook, as cyber threats and Brexit-related risks to business operations continue to be a major concern.

The report reveals that EU financial markets can be expected to become increasingly sensitive to mounting political and economic uncertainty, with concerns over a no-deal Brexit weighing on the economic and market expectations. Overall, weakening growth prospects and political and geopolitical tensions are likely to be the main drivers of volatility looking forward. ESMA, in a series of articles in the Vulnerabilities section of the report, also looks in more detail at the following key issues:

  • Regtech and Suptech. The article on this topic helps to examine how technology can help supervised entities and supervisors to perform their duties. New automated tools in areas such as fraud detection, regulatory reporting, and risk management are available for firms, while potential applications of new tools for regulators include greater surveillance capacity and improved data collection and management.
  • New stress-testing requirements for Money Market Funds (MMFs) in EU. The article on this topic provides an overview of the potential financial stability risks posed by MMFs and discusses how the MMF stress test guidelines aim to increase the resilience of the sector by addressing the identified issues, including the “first-mover advantage.” The MMF Regulation also introduces new stress-testing requirements, as part of the fund risk management and regulatory disclosure. ESMA will design common parameters and scenarios to coherently capture the risks in the sector. Stress test results will be reported to ESMA and the national competent authorities.

 

Related Links

Keywords: Europe, EU, Securities, Brexit, Regtech, Suptech, Stress-Testing, Market Risk, Credit Risk, MMFs, ESMA

Related Articles
News

EBA Report Assesses Regulatory Framework for Fintech Activities

EBA published the findings of its analysis on the regulatory framework applicable to fintech firms when accessing the market.

July 18, 2019 WebPage Regulatory News
News

OSFI Revises Capital Requirements for Operational Risk for Banks

OSFI is revising its capital requirements for operational risk, in line with the final Basel III revisions published by BCBS in December 2017.

July 18, 2019 WebPage Regulatory News
News

OSFI Consults on Revised Principles for Management of Liquidity Risk

OSFI proposed revisions to Guideline B-6 on the principles for the management of liquidity risk.

July 18, 2019 WebPage Regulatory News
News

ESMA Guidance on Disclosures for Credit Rating Sustainability Issues

ESMA published the technical advice on sustainability considerations in the credit rating market, along with the final guidelines on disclosure requirements applicable to credit ratings.

July 18, 2019 WebPage Regulatory News
News

FASB Issues Q&A on Estimation of Expected Credit Losses by Firms

FASB issued a second question-and-answer (Q&A) document that addresses more than a dozen frequently asked questions related to the Accounting Standards Update No. 2016-13 titled “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”

July 17, 2019 WebPage Regulatory News
News

US Agencies Delay Enforcing Volcker Rule Restrictions on Foreign Funds

US Agencies (FDIC, FED, and OCC) announced that they will not take action related to restrictions under the Volcker Rule for certain foreign funds for an additional two years.

July 17, 2019 WebPage Regulatory News
News

SRB Announces SRF Receives Cash Injection, Grows to EUR 33 billion

SRB announced that the Single Resolution Fund (SRF or the Fund) received a cash injection of EUR 7.8 billion from 3,186 institutions in 2019, bringing the total amount in the Fund to about EUR 33 billion.

July 17, 2019 WebPage Regulatory News
News

FASB to Propose to Delay CECL Compliance Deadline for Certain Entities

FASB published a summary of the tentative decisions taken at its Board meeting in July 2019.

July 17, 2019 WebPage Regulatory News
News

IMF Publishes Report on 2019 Article IV Consultation with Vietnam

IMF published its staff report in context of the 2019 Article IV consultation with Vietnam.

July 16, 2019 WebPage Regulatory News
News

European Parliament Elects Next President of European Commission

European Parliament elected Ursula von der Leyen from Germany as the first female President of the next European Commission for a five-year term from November 01, 2019.

July 16, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3476