ESMA’s First Risk Report on EU Securities says Calm and Better Investment Conditions Prevail
The European Securities and Markets Authority (ESMA) has today published its first report on ‘Trends, Risks and Vulnerabilities’ in the European Union (EU) securities markets, alongside a new risk dashboard for Q412 which shows that systemic risk has decreased. The report says investment conditions in the EU improved in 2012, especially in the second half of the year, following the European Central Bank (ECB) decision to launch a bond buying scheme to support the euro.
The investment recovery, or at least the stopping of the rot, can be linked to the ECB’s announcement of Outright Monetary Transactions (OMT) last summer, says ESMA’s report, which alleviated pressure on euro area sovereign bond markets and reduced uncertainty among market participants. However, risk indicators in the Q4 dashboard remained at high levels. Among other factors, this was due to the on-going sovereign debt and banking crisis, which still required further action such as the details about the single banking union to be established to allay fears about a meltdown. Other factors in the present risk environment highlighted by ESMA include the realignment of risk assessments by corporate treasury investors and others, difficulties in funding risk, and the potential long-term implications of continued low interest rates – not to mention obstacles to orderly market functioning such as regulatory and non-compliance concerns.
The ESMA report on ‘Trends, Risks and Vulnerabilities’ looks at the performance of securities markets throughout 2012, assessing both trends and risks in order to develop a comprehensive picture of systemic and macro-prudential risks in the EU that can serve both national and EU bodies in their risk assessments. Their findings will have implications for corporate treasurers, banks and other financiers. By regularly looking into cross-border and cross-sector trends and risks both at the wholesale and retail level, ESMA’s report aims to contribute towards promoting financial stability and enhancing consumer protection, says the organisation which is placing quite a responsibility on its inaugural report here.
The report identifies the following key trends in EU securities markets:
In addition to market trends and risks, ESMA monitors on an on-going basis market developments which may be considered as representing possible vulnerabilities. Its report on ‘Trends, Risks and Vulnerabilities’ therefore also looked at:
Commenting on the inaugural ESMA report, Steven Maijoor, chair of the European Securities and Markets Authority, which was itself only set up after the disastrous 2008 crash, said: “ESMA’s risk analysis points to important first signs of easing in EU financial markets, but risks remain high and regulators, market participants and investors should remain vigilant about risks in the financial markets.
“This report provides a guide for securities regulators on those areas requiring regulatory focus in order to build on recent improvements in financial markets and to foster financial stability in the EU,” he added.
Quarterly Risk Dashboard
As part of its on-going market surveillance, ESMA will update its ‘Trends, Risks and Vulnerabilities’ report on a half-yearly basis, so it will be interesting to see how its next 2013 report sees the investment and risk picture for corporate investors. Its next quarterly risk dashboard is due out in the spring, however, and will provide a quicker risk overview for those still worried that the relative calm on EU financial markets, and in regard to eurozone crisis, will not last.
The key findings of the present Q4 2012 ESMA risk dashboard were as follows:
ESMA is an independent EU authority that was established on 1 January 2011 with a remit to enhance the protection of investors and promote stable and well-functioning financial markets in the EU. It works closely with the other European supervisory authorities responsible for finance and banking such as the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), plus the European Systemic Risk Board (ESRB), which makes up the triumvirate of new post-crash European regulatory bodies. ESMA’s trend reports and new risk dashboards and, therefore, likely to become key market indicators as to health or otherwise of the financial sector on the continent and a key guide to investors.