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EU financial markets enter 2026 amid high-risk environment
EU financial markets enter 2026 amid high-risk environment
Press ReleasesRisk monitoringThe European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, published today its first risk monitoring report of 2026, outlining the key risks and vulnerabilities in EU financial markets. ESMA finds that risks of market and systemic stress remain high despite resilient market performance in the second half of 2025.
Our risk assessment for the second half of 2025 has been completed well before the current shocks to the global economy from the war in the Middle East commenced in late February this year. Yet first market reactions in the EU and elsewhere to that war underline the transmission channels and sensitivities we have highlighted in our risk monitoring.
The likelihood of sudden and significant market price swings continues, driven by increasing geopolitical tensions, stretched equity valuations, and an uncertain economic outlook in the EU. Rising price correlations across asset classes heighten contagion risk while cyber and hybrid threats continue to grow in scale and sophistication, increasing the risk of operational disruptions in financial markets.
Verena Ross, ESMA’s Chair, said:
“The recent escalation of conflict in the Middle East continues to significantly affect markets, leading to sharp increases in energy and commodity prices, as well as elevated volatility.
ESMA’s latest risk monitoring analysis highlights the potential for disorderly corrections that could spill over across markets. In this context, disciplined risk monitoring and risk management remain essential to ensure orderly markets, a core objective for ESMA.”
Beyond the risk drivers, ESMA’s report sets out market developments and conditions across key segments of EU financial markets during the second half of 2025. It also provides deep dives on selected topics such as EU sovereign bonds’ sensitivity to unexpected events, funds’ exposure to private finance, EU listings trends, and physical risk and catastrophe bonds.
Market developments
Securities markets and crypto-assets
Record-high global equity valuations in the second half of 2025 and early 2026 increased the risk of disorderly market corrections. European sovereign bond spreads versus Germany narrowed, although liquidity weakened slightly amid macroeconomic uncertainty. At the same time, credit-quality signals in the EU remained mixed, with growing concerns especially around US private credit. The October flash crash triggered an extended sell-off in crypto markets, although stablecoins continued to grow, albeit at a slower pace.
Infrastructures and services
Financial firms and infrastructures are increasingly targeted by cyber and hybrid threats and vulnerable to operational dependencies likely to propagate shocks. CSDs experienced a surge in settlement fails for ETFs in April, and UCITS and equities in August and September.
Asset management
Equity funds saw strong performance. This was largely driven by valuations, through increased exposure to the US market. The growth of private finance funds contributes to the funding of the real economy, but requires monitoring given opacity and interconnectedness concerns.
Consumers
As investors continued shifting from active to passive strategies, ETF inflows remained high. The growing influence of social media on younger investors increases bubble risks, while leveraged products, such as turbos, often deliver negative returns for retail investors.
Structural developments
Market-based finance
Equity issuance remained weak as IPO activity continued to decline and secondary offerings provided limited support. ESMA’s analysis found no clear evidence of rising delistings in Europe, but it highlighted a persistent downward trend in IPOs.
Sustainable finance
A cooling in global climate policy sentiment weighed on ESG investing, even as ESMA’s fund naming guidelines improved portfolio transparency. Meanwhile, rising awareness of physical climate risks drove catastrophe bond issuance to record highs in 2025, with EU funds increasingly offering exposure to these instruments.
Financial innovation
Tokenisation adoption remained low but gained momentum, including with the growth of tokenised money market funds. Interest in quantum computing applications increased, although applications remain experimental and far from commercial use.
Further information:
Ana Dilaverakis
Communications Officer
press@esma.europa.eu11/03/2026 ESMA50-1949966494-4041Trends, Risks and Vulnerabilities (TRV) Report, No. 1, 2026 11/03/2026 ESMA50-1949966494-4042Trends, Risks and Vulnerabilities (TRV) Report, No. 1, 2026 - Statistical Annex 11/03/2026 ESMA71-545613100-2904EU financial markets enter 2026 amid high-risk environment - Press Release (TRV 1, 2026) New investment funds drive reduction in costs to investors
New investment funds drive reduction in costs to investors
Fund ManagementPress ReleasesRisk monitoringThe European Securities and Markets Authority (ESMA), the EU financial markets regulator and supervisor, today publishes its 2025 market report on the costs and performance of EU retail investment products.
This eighth Costs and Performance report shows that ongoing costs in the EU continued to decline in 2024. This is however mostly due to new investment funds entering the market, as they usually charge lower fees. Cost reductions for long-standing funds remained more limited.
Verena Ross, ESMA Chair said:
“In 2024, EU retail investment fund market saw stronger performance and gradually declining costs, driven largely by new funds.
The data we publish today shows gradual cost pressure in EU markets and - with that – improving investor outcomes. The report highlights however that benefits are uneven and product choice matters. Transparency and competition remain key to translating market improvements into real gains for investors.”
The cost and performance of products are key determinants of the benefits retail investors in the EU can get from their investments. Clear and comprehensive information enables investors to assess costs and past performance and supports informed decision-making and retail participation in capital markets. The findings also demonstrate the importance of cost transparency, as well as the obligation for asset managers and investment firms to act in the best interest of investors.
The key findings in the report are:
- UCITS costs declined gradually, driven mainly by new funds, with ongoing costs falling by 8% for retail equity funds, and by almost 15% for retail bond funds. Cost reductions were more limited for existing funds, at 3% for equity funds and 9% for bond funds.
- UCITS performance improved significantly in 2024. Equity and mixed funds achieved their second-best results since 2020, while bond funds reached their highest level of returns. Real net returns were positive across all fund categories, marking a clear turnaround from 2023.
- ESG UCITS continued to have lower costs than non-ESG. However, in 2024, ESG funds underperformed their non-ESG equivalents. Similarly, funds classified under SFDR Article 9 recorded lower returns than Article 6 funds.
- Alternative Investment Funds (AIFs) remained dominated by professional investors, and between 2022 and 2024 the share of retail investors investing in these products decreased from 14% to 9%. Annual net returns were positive across all categories of AIFs in 2024.
- Structured Retail Product costs remained broadly stable in 2024, while interest-rate linked products continued to gain market share, reaching 27% – up from just 1% in 2021. Structured products that matured in 2024 delivered positive gross returns, although these figures do not reflect the costs paid by investors.
Further information:
Ana Dilaverakis
Communications Officer
press@esma.europa.eu03/03/2026 ESMA50-1949966494-4065Market report on Costs and performance of EU retail investment products 2025 03/03/2026 ESMA50-1949966494-4048Market report on Costs and performance of EU retail investment products 2025 - Annex ESMA publishes the results of the annual transparency calculations for equity and equity-like instruments
ESMA publishes the results of the annual transparency calculations for equity and equity-like instruments
Market dataTradingThe European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has published today the results of the annual transparency calculations for equity and equity-like instruments, which will apply from 6 April 2026.
The calculations made available include:
- the liquidity assessment as per Articles 1 to 5 of CDR 2017/567;
- the determination of the most relevant market in terms of liquidity as per Article 4 of CDR 2017/587 (RTS 1);
- the determination of the average daily turnover relevant for the determination of the pre-trade and post-trade large in scale thresholds;
- the determination of the average value of the transactions and the related the standard market size; and
- the determination of the average daily number of transactions on the most relevant market in terms of liquidity relevant for the determination of the tick-size regime.
Market participants are invited to monitor the release of the transparency calculations for equity and equity-like instruments on a daily basis to obtain the estimates for newly traded instruments and the four-weeks calculations applicable to newly traded instruments after the first six-weeks of trading.
The full list of assessed equity and equity-like instruments is available through ESMA’s FITRS in the XML files with publication date from 27 February 2026 (see here) and through the Register web interface (see here).
ESMA also recalls that the application of the remaining revised rules on transparency of equity and equity-like financial instruments included in RTS 1 are applicable from 2 March 2026.
Next steps
The transparency requirements are based on the results of the annual transparency calculations published from 27 February 2026 for equity and equity-like instruments will apply from 6 April 2026 until 4 April 2027. The next annual transparency calculations for equity and equity-like instruments, to be published by 1 March 2027, will become applicable from 5 April 2027.
Further information:
Cristina Bonillo
Senior Communications Officer
press@esma.europa.euNew Q&As available
New Q&As available
CCPDigital Finance and InnovationFinancial reportingIssuer disclosureTransparencyThe European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has published or updated the following Questions and Answers:
European crowdfunding service providers for business
Markets in Crypto-Assets Regulation (MiCA)
- Clarification on Withdrawal Requirements under Article 75 of MiCA for CASPs (2320)
- Calculation of fixed overheads (2349)
- Interests earned from client funds deposited at credit institutions (2486)
- Payouts in fiat currency by CASPs in the context of exchange services (2550)
- Overlap between offers of crypto-assets and placing (2551)
- Application of Title II requirements to CASPs operating a trading platform for crypto-assets (2552)
OTC derivatives, central counterparties and trade repositories (EMIR) – CCPs
- AAR threshold calculation (2418)
- AAR representativeness obligation (2776)
- AAR representativeness obligation (2777)
- AAR stress testing (2778)
- AAR threshold calculation (2779)
Transparency Directive
New Q&A (effective from 1 January 2027):
Updated Q&As (amendments effective from 1 January 2027):
ESMA issues a supervisory briefing on algorithmic trading
ESMA issues a supervisory briefing on algorithmic trading
TradingThe European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, today published a supervisory briefing to support consistent supervision of algorithmic trading across the EU.
The briefing provides National Competent Authorities (NCAs) with practical tools and clarified expectations for supervising firms engaged in algorithmic trading under MiFID II. It focuses on key areas where supervisory practices have diverged, including pre-trade controls, governance arrangements, testing frameworks and outsourcing of algorithmic trading systems.
Given the extended use of artificial intelligence in algorithmic trading, the briefing also touches upon these emerging technological developments, outlining considerations for the use of AI. This section aims to help supervisors assess new risks and ensure that firms adopt robust and responsible approaches when deploying advanced technologies in their trading operations.
As a nonbinding convergence tool, the briefing complements the existing requirements and supports NCAs in taking a harmonised approach to oversight.
Next steps
ESMA will share the supervisory briefing with NCAs to support day to day supervision. ESMA will continue to monitor market and technological developments and may update the briefing or develop further convergence tools as needed.
Further information:
Cristina Bonillo
Senior Communications Officer
press@esma.europa.eu26/02/2026 ESMA74-1505669079-10311Supervisory briefing on algorithmic trading in the EU
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