The Autorité des Marchés Financiers today published 2011 Risk and Trend Mapping for Financial Markets and Savings. This fifth edition of the report covers market and financing trends, household saving and asset management, and changes in market structure. Most of the risks identified in the previous edition published in April 2010 have materialised and some have intensified with Europe’s sovereign debt crisis. In addition, certain major issues highlighted by the AMF now constitute new and significant areas of focus for the G-20 work programme on financial regulation:
- the transfer of risks from the banking sector to other parts of the financial system, now addressed from the broad angle of shadow banking;
- the goals of market transparency, integrity and efficiency;
- supervision and oversight of commodity derivatives markets.
Risks: the mapping exercise reveals several types of risks. Some concern the macroeconomic and financial environment and are fundamental to the way that markets and their participants operate; othersare microeconomic and concern particular markets or institutions. The report addresses:
- macrofinancial risks, relating to sovereign risks in Europe and the rise in global investment flows into risky assets amid a search for yield;
- risks arising from commodity market trends, notably the growing presence of financial investors in these markets, where the supervisory and regulatory framework is still inadequate;
- risks to price formation and market robustness owing in particular to the spread of algorithmic trading and high frequency trading;
- the risk that equity markets will become less attractive for small and midsized businesses as the world’s main financial exchanges consolidate;
- risks to long-term business financing, owing to the reorganisation of financing channels prompted by prudential reform;
- risks to the reform of over-the-counter derivatives markets if differences in regulatory regimes emerge;
- risks arising from the supply of riskier and/or more complex products, some of which are marketed aggressively and subject to widely divergent rules and levels of supervision;
- risks arising from the growth of Constant Net Asset Value money market funds in Europe and from the particular weaknesses of these vehicles.
Action: Risk analysis informs the action taken by the AMF in its investor protection and information, supervisory and oversight roles, as well as its regulatory proposals at domestic, European and international levels. All these measures are taken in connection with the AMF’s strategic plan and include:
- formulation of a policy with the Autorité de Contrôle Prudentiel on highly complex structured products marketed to retail investors;
- contribution to the MiFID review and the work done by ESMA and IOSCO on high frequency trading;
- initiatives aimed at small and midsized firms;
- further work on the risks arising from exchange traded funds/products;
- active contribution to ongoing discussions on supervision and regulation of the shadow banking system.