Despite the passage of a couple weeks, markets and regulatory authorities are still coming to terms with the Brexit, and more importantly, any potential headwinds that will affect the market supervisory playing field. The Autorite des Marches Financiers’ (AMF) has taken a particular interest in the event, which coupled with a number of other stimuli has opted to publish its 2016 risk map, per a recent AMF report.
After what had been a relatively subdued H1 2016, markets have now been given a healthy dose of volatility, albeit from some unexpected and in many circles unwanted channels. In any scenario, the Brexit voting result has cast a deep ray of uncertainty over the future of UK regulation, not only as it pertains to the broader EU, but for the UK itself. Regulators such as the FCA have already released statements giving clues to their future directives.
Additionally, the aggregate effects of a low interest rate environment, coupled with risk of a sharp re-pricing of assets, and sweeping structural changes in markets, have all prompted the AMF to take a closer look at its 2016 risk mapping initiatives. As such, the group has given a current state assessment of the main risks to markets, encompassing retail investment, collective investment, and the financing of the economy.
The latest development constitutes the AMF’s tenth risk mapping segment, framed in large part against the backdrop of the Brexit vote. While the UK is today still a member of the EU, future negotiations with the European Council over the eventual terms of its schism with the bloc will be instrumental for the activities of management companies and investment services providers.
One area that was floated around in the risk mapping was the focus on the conditions and areas in which UK providers could potentially be eligible to continue to operate in Europe under a ‘third country’ regime. By extension, the Brexit situation also gives rise to a multitude of queries over the clearing of euro-denominated contracts and market supervision.
The latest market developments also piggyback off of previously identified risk mappings by the AMF, which are outlined in detail below along with an updated regiment of topics:
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– Central banks’ adoption of new measures to support growth leading to low interest rates
– Brexit’s impact on engendering and encouraging this behavior in the EU
– The possible undermining of banks’ and insurers’ economic models leading to more risk adoption and illiquid assets
– A disappearance of risk premium point to a disconnect between borrowers’ situations and valuations across the bond markets
– Investor growth called into question as global growth and the lack of inflation have lowered credit risk
– Market fragmentation