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ESMA sees continued high levels of risk in financial markets

16 December 2015

The European Securities and Markets Authority (ESMA) has issued today its Risk Dashboard for the European securities markets covering the third quarter of 2015.

Overall, the report found that risk levels remained high compared to the last quarter -- including elevated risks for investors, infrastructures and services, and the financial system at large. Market risks indicators continued to remain at “very high”, following a continuous build-up in the preceding quarters. Key risk drivers were the low-interest-rate environment, high asset valuations, potential spill-overs from emerging markets and fiscal and political developments within the EU. ESMA’s market risk outlook remains unchanged at “very high”.

ESMA’s credit risk assessment remains unchanged at very high levels. While still at a lower level, liquidity risk is under scrutiny due to intensifying pressures, while contagion and operational risk remain unchanged at high and elevated levels. Systemic stress remained at a high level in 3Q15, driven by prolonged market uncertainty over sovereign debt in the EU and rising concerns over market developments in emerging markets. A low interest rate environment still prevails in the EU as market developments in currency and commodity markets raised concerns over potential deflationary pressures. The macroeconomic environment saw increased uncertainty over the future monetary policy stance in the EU and in the US. This, together with potentially thin liquidity on some more vulnerable markets could amplify the risk of a reversal in global risk.