European regulator sees increased risk for financial markets after Brexit

The European Securities and Markets Authority (ESMA) has published an update to its risk dashboard since the regulator’s risk assessment has changed as a result of the outcome of the UK referendum on EU membership.

The overall assessment of risk levels in EU markets under ESMA’s remit, as indicated in the Risk Dashboard No.2, 2016 remain unchanged for the time being, characterised by continued very high credit and market risks.

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The risk outlook, however, has changed for the current and next quarters with the uncertainty reflected in increased market, liquidity and contagion risks going forward, as political and event risks have intensified, and the macroeconomic environment may deteriorate. Any crystallisation of these risks may also impact other segments in the ESMA remit.

According to ESMA, the outcome of the UK referendum and the resulting market uncertainty effect the general economic outlook for the EU and the global economy; the long-term implications for financial markets, as well as any transitional issues; and the further political impact and the nature of the roadmap for executing the decision.As such the regulator sees heightened risk in the macroeconomic environment, and a rise in expected political and event risks.

The ESMA statement, the risk dashboard and the update to it are available here.