ESMA issued the latest iteration of its risk dashboard, which covers risks in the securities markets in EU for the first quarter of 2018. The overall risk assessment of ESMA remains unchanged from the fourth quarter of 2017. The outlook for liquidity, contagion, and credit risks remains unchanged at high. Operational risk continues to be elevated, with a deteriorating outlook, as Brexit-related risks to business operations and vulnerabilities to cyber-attacks rise.
ESMA remains concerned about investor risks, which have been mounting across a range of products. Consequently, ESMA issued a pan-EU warning to consumers regarding the risks of buying virtual currencies. This follows its earlier risk alert on initial coin offerings (ICOs). To protect investors from undue risk-taking, ESMA also brought in a temporary prohibition of binary options and leverage restrictions on contracts for difference (CFDs) using its new product intervention powers under the Market in Financial Instruments Regulation (MiFIR).
In the first quarter of 2018, equity markets in the EU and elsewhere saw significant price corrections, with a 6% drop in EU stock prices and the return of market volatility. The risk assessment of ESMA also raises concerns about the persisting, very high market risks. These risks result from asset over-valuations in equities as well as market uncertainty, as the period of ultra-low interest rates draws to a close.
Keywords: Europe, EU, Securities, Risk Dashboard, Market Risk, Operational Risk, Virtual Currencies, Cyber Risk, Credit Risk, ESMA
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