The EU’s
financial markets supervisor and regulator, the European Securities and Markets
Authority (ESMA), published its newest 2023 Trends, Risks and Vulnerabilities
Report, highlighting still high investment risk in the international markets.
ESMA warns retail investors that markets could face further downward
corrections despite a positive January.
ESMA Advises Preparing for
Further Downturn
According
to ESMA’s report, the dangers associated with contagion and operational risks
are still very high. Similarly, the liquidity and market risks are deemed
extremely extended. The prospect of credit risk continues to be a major concern
and is projected to escalate due to increasing public and corporate debt worries.
In the
latter half of 2022, stock prices experienced fluctuations, with the market
partially bouncing back in the third quarter due to news of comparatively
stable inflation and favorable corporate earnings reports. The start of the
year has seen a positive rebound in equity markets, but ESMA warns that
declines could return in the nearest future.
“Financial
markets remained remarkably stable in 2H22, despite the general volatile
environment. Although economic sentiment has become more positive in early
2023, there is no room for complacency. ESMA is keeping the overall risk
assessment across its remit at the highest level,” Verena Ross, the Chair
of ESMA, commented.
“The
confluence of high risks across the ESMA remit and fragile market liquidity may
test the resilience of the financial system against possible future shocks,”
Ross added.
ESMA on Cryptocurrency
Effects on EU Finance Sector
In its
report, ESMA highlights the crypto asset sector. As it notes, market valuations
have shrunk by 70% in 2022, driven by macroeconomic factors and the
high-profile collapses of Terra and FTX.
“Contagion
within the crypto sector has been substantial, reflected in further price drops
of key crypto instruments and knock-on bankruptcies among service
providers,” ESMA commented.
However,
the regulator does not see the negative impact of adverse conditions in global
cryptocurrency on the deterioration of the financial sector’s health in Europe.
ESNA explains this by the low exposure of participants from the Old Continent
to the crypto asset market.
Watch the recent FMLS22 panel on “Regulation Roundup: Everything You Need to Know for 2023.”
New Logo, New Website and
New Framework from ESMA
In early
2023, the ESMA underwent a rebranding presenting a refreshed logo and a
completely new website.
“The
design of the new logo fully embraces the ESMA Strategy for 2023-2028 and its
key twin drivers: sustainability as well as technological and data
innovation,” ESMA commented.
However,
ESMA is setting its sights not only on a refreshed design, but also on new
targets in 2023. For this reason, in January, it launched a review of the
promotion of financial products in various European countries. This is a
similar step to that taken by the UK FCA in 2022.
ESMA wants
to work with national competent authorities (NCAs) to confirm that Markets in
Financial Instruments Directive ) II is correctly applied in terms of marketing
financial products in the EU territories. NCAs will examine the correct form of
promotions, especially in the case of more risky investments, most likely
including crypto assets and contracts for difference.
The EU’s
financial markets supervisor and regulator, the European Securities and Markets
Authority (ESMA), published its newest 2023 Trends, Risks and Vulnerabilities
Report, highlighting still high investment risk in the international markets.
ESMA warns retail investors that markets could face further downward
corrections despite a positive January.
ESMA Advises Preparing for
Further Downturn
According
to ESMA’s report, the dangers associated with contagion and operational risks
are still very high. Similarly, the liquidity and market risks are deemed
extremely extended. The prospect of credit risk continues to be a major concern
and is projected to escalate due to increasing public and corporate debt worries.
In the
latter half of 2022, stock prices experienced fluctuations, with the market
partially bouncing back in the third quarter due to news of comparatively
stable inflation and favorable corporate earnings reports. The start of the
year has seen a positive rebound in equity markets, but ESMA warns that
declines could return in the nearest future.
“Financial
markets remained remarkably stable in 2H22, despite the general volatile
environment. Although economic sentiment has become more positive in early
2023, there is no room for complacency. ESMA is keeping the overall risk
assessment across its remit at the highest level,” Verena Ross, the Chair
of ESMA, commented.
“The
confluence of high risks across the ESMA remit and fragile market liquidity may
test the resilience of the financial system against possible future shocks,”
Ross added.
ESMA on Cryptocurrency
Effects on EU Finance Sector
In its
report, ESMA highlights the crypto asset sector. As it notes, market valuations
have shrunk by 70% in 2022, driven by macroeconomic factors and the
high-profile collapses of Terra and FTX.
“Contagion
within the crypto sector has been substantial, reflected in further price drops
of key crypto instruments and knock-on bankruptcies among service
providers,” ESMA commented.
However,
the regulator does not see the negative impact of adverse conditions in global
cryptocurrency on the deterioration of the financial sector’s health in Europe.
ESNA explains this by the low exposure of participants from the Old Continent
to the crypto asset market.
Watch the recent FMLS22 panel on “Regulation Roundup: Everything You Need to Know for 2023.”
New Logo, New Website and
New Framework from ESMA
In early
2023, the ESMA underwent a rebranding presenting a refreshed logo and a
completely new website.
“The
design of the new logo fully embraces the ESMA Strategy for 2023-2028 and its
key twin drivers: sustainability as well as technological and data
innovation,” ESMA commented.
However,
ESMA is setting its sights not only on a refreshed design, but also on new
targets in 2023. For this reason, in January, it launched a review of the
promotion of financial products in various European countries. This is a
similar step to that taken by the UK FCA in 2022.
ESMA wants
to work with national competent authorities (NCAs) to confirm that Markets in
Financial Instruments Directive ) II is correctly applied in terms of marketing
financial products in the EU territories. NCAs will examine the correct form of
promotions, especially in the case of more risky investments, most likely
including crypto assets and contracts for difference.
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