The European Securities and Markets Authority (ESMA) on Thursday 2 April updated its risk assessment to take into account the impact of the COVID-19 pandemic on the markets. It considers that the risks are currently very high and are expected to increase further.
The pandemic has led to massive equity market corrections since mid-February, driven by a sharp deterioration in the outlook for consumers, businesses and of the economic environment, the ESMA said.
“In light of the COVID-19 pandemic and its impact on the EU economy and financial markets, ESMA assesses the risks in its overall remit (…) as very high for the time being. The same applies to liquidity and market risks, and we expect a rise in operational, credit, contagion and consumer risks”, the Authority said.
Corporate bond, government bond markets and a number of investment funds show “signs of stress”. In addition, uncertainty about the economic impact of the pandemic is expected to lead to greater volatility in financial markets.
On operational risks, ESMA considers the outlook as “negative” due to the increasing use of remote working arrangements, even if Business Continuity Plans are widely reported as working, says the Agency.
The extent to which these risks will further materialise will critically depend on two drivers, according to ESMA, namely the economic impact of the pandemic and the occurrence of additional external events in an already fragile global environment.
See the update: https://bit.ly/3bLxUBW (Original version in French by Marion Fontana)