ESMA published its second report of the year on the trends, risks, and vulnerabilities in EU. This issue of the biannual report covers the period from January 01, 2018 to June 30, 2018. The report reveals that the securities markets, infrastructures, and investors in EU face new risks in the form of high volatility. In the report, ESMA also reiterated its concerns about cyber risk and Brexit risks for business operations.
The report examines the performance of securities markets, assessing both trends and risks to develop a comprehensive picture of systemic and macro-prudential risks in EU, to assist both national and EU bodies in their risk assessments. It finds that the overall risk levels for the securities markets in EU remained stable but at high levels for most risk categories. Moreover, investor risks persist across a range of products. Under the Markets in Financial Instruments Regulation, or MiFIR, product intervention powers, ESMA restricted the provision of contracts for differences and prohibited the provision of binary options to retail investors. The new measures started to apply from August 01, 2018 and July 02, 2018, respectively.
The report reveals that the financial markets in EU can be expected to become increasingly sensitive to mounting economic and political uncertainty from diverse sources, such as weakening economic fundamentals, transatlantic trade relations, emerging market capital flows, and Brexit negotiations. Assessing business exposures and ensuring adequate hedging against these risks will be a key concern for market participants in the coming months. The report identifies the following key risks in EU securities markets:
- Market risk remains at a very high level accompanied by very high risk in securities markets and elevated risk for investors, infrastructures, and services. The outcome of the Brexit negotiations remains the most important political risk for the EU, at this stage.
- Credit and liquidity risks remain high, with a deterioration in outstanding corporate debt ratings and deterioration in measures of corporate and sovereign bond liquidity
- Operational risk continues to be elevated with negative outlook, as cyber threats and Brexit-related risks to business operations remain major concerns.
Keywords: Europe, EU, Securities, TRV Report, Cyber Risk, Brexit, Market Risk, ESMA
Previous ArticleMAS Consults on Measures to Strengthen Cyber Resilience of FIs
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).