UK banks, insurers and investment funds have bounced back to confidence levels last seen in the first half of 2011, the survey said.
Only one in five respondents consider the probability of a “high-impact event” occurring in the short term to be high or very high – down 16 percentage points since the first half of this year.
Meanwhile over a third (34 per cent) of interviewed financial workers consider the chances of such a prospect to be low.
Yet people remain wary of a so-called high-impact event hitting markets in the medium term, with 41 per cent saying there is still a high or very high probability of such a scenario.
And government debt levels are the greatest concern. “Sovereign risk is now cited by a greater proportion of respondents than previously recorded for any risk,” the report said.
Sovereign risk was mentioned by 94 per cent of respondents when asked which factors could have the greatest impact on the UK financial system if they were to materialise.
“Concern focused mainly on Europe (mentioned in 79 per cent of the responses that indicated a particular area of sovereign risk), while the US and the UK were cited in nine per cent and 12 per cent of those responses respectively,” the report said.
“Of the 79 per cent of respondents citing Europe, six out of ten highlighted concerns over a break up or collapse of the euro area.”
Following sovereign risk and the threat of an economic downturn, risks from government taxes and regulations jumped to an unwelcome third place in the list of risks to the UK’s financial system.
And regulation and taxes also came third in a list of the risks most challenging to manage as a firm, being cited by 24 per cent of respondents – although this was down eight percentage points from the previous survey.