The European Securities and Markets Authority (ESMA) recently released its newest Trends, Risks, and Vulnerabilities (TRV) Report. This report shows its assessment of the current risks being faced by European investors.
The report shows that EU's risk categories are still pretty high. In February, equity markets faced a lot of volatile action, with fluctuating values. This was the result of strong market correction. The market is still stable but the volatility can be a concern for investors wanting safe investments. The market movements also prove ESMA's concerns.
ESMA Reports Highlights Four Risks
The report has divided the risks facing investors in the EU markets into four categories. They are Market Risk, Operational Risk, Credit Risk and Retail Investor Risk. Market Risk for EU investors is very high right now. This is because of high market asset valuations. There is also the possibility of a lot of geopolitical turmoil mainly due to a potential Brexit. This has led to quite a bit of market uncertainty in the EU.
The danger of Credit Risk has eased a bit. It used to have a ‘very high’ rating but ESMA has downgraded it to just ‘high’. This is because of the higher credit ratings of EU member states, combined with the stronger economy across the EU. Lending money in the EU continues to be risky but not as risky as it used to be.
The operational risks of investing in the EU are still high. This is mainly because of ESMA's deteriorating outlook on the risks in the EU, with a special emphasis being place on cyber concerns.
Finally, retail investment risks have also gone up. This is mainly because of the rise in demand for cryptocurrencies and the increased participation of many EU investors in initial coin offerings (ICO).
ESMA categorizes these as very high-risk offerings as quite a few of these ICOs have been at the center of scams and fraudulent activity. ESMA warns that investors can potentially lose most or all of their money. They also cite that their ICO anonymity also makes them vulnerable to fraud and money laundering.
ESMA Continues To Take Steps To Protect EU Investors
The ESMA has been doing its best to limit the risk for investors in the EU market. Recently, ESMA cracked down on the Binary Options industry and also took steps to limit the leverage in FX trading to 1:30.
ESMA has gained quite a bit of respect in the EU's financial sector. Cyprus' financial regulatory body, CySEC has actually used ESMA regulations on the appointment of new management body members as a basis of their own guidelines. Many EU member states are now listening to ESMA and the latest report will serve as a great guideline to EU investors.
