Welcome to our Gold Friends weekly e-mail.

My highlights of the week: Commissioner McGuiness pointed to the early agreement on ESM reform and the consultations on crisis management and deposit insurance as evidence of the strong commitment to Banking Union and CMU. EBA will publish the scenarios for its 2021 stress test next week – how severe amidst the second Covid wave? How will banks have to treat moratoria and government guarantees? EBF gets down to the detail of applying the green taxonomy to core banking activities. GDPR fines up 39% last year! BIS shows central banks are preparing to lead on digital money. 587 MEPS demand proper action on tax havens – after Brexit, the “British spider’s web” of havens is a target.

 A City of London report shows that London remains the leading global financial centre but Commissioner McGuiness warns that equivalence is a long way off – UK’s former Commissioner Hill says “why on earth would they?” allow London to continue its domination. Firms find the EU is serious about adequate staff re-locations...

Graham Bishop

Articles from 21- 28 January 2021

General Financial Policy

European Commission: Targeted consultation on the review of the crisis management and deposit insurance framework : Experience with the application of the current crisis management and deposit insurance framework until now seems to indicate that adjustments may be warranted. View Article

CEPS:How crisis-proof are financial market infrastructures? : The pandemic has caused unprecedented volatility in the financial markets. The corporate sector has been hit by supply disruptions and weak demand. Amid such turbulence, providers of infrastructure services for financial markets, such as exchanges, clearinghouses, trade depositories and custodians, financial data, and technology providers, are vital to providing robust and stable platforms and operations as well as timely information to allow for efficient transactions.  View Article

ECB's Frank Elderson: earing of the Committee on Economic and Monetary Affairs of the European Parliament : Hearing of the Committee on Economic and Monetary Affairs of the European Parliament Introductory statement by Frank Elderson, Member of the Executive Board of the ECB, at the ECON Committee of the European Parliament  View Article

Vox: Moral hazard, the fear of the markets, and how central banks responded to Covid-19 : While some Fed interventions had little or no impact on market fear, the most powerful were the US dollar swap lines, which strongly reduced the perceived likelihood of global market losses decades into the future. The results suggest that the Fed's relative global role has been strengthened, possibly at the cost of increased moral hazard. View Article

London leads global finance rankings in new benchmarking researc : New figures published by the City of London Corporation, show that, London continues to hold the top spot for financial and professional services, when compared to other global destinations, including New York, Singapore, Hong Kong and Frankfurt. View Article

Invest Europe: Let’s just… not build a wall : “European economic and financial system: Fostering openness, strength and resilience” – even to the seasoned EU observer the title of the most recent Communication from DG FISMA is unique, and… a bit of a tongue- and mind-twister. In short though: The paper is about EU financial sovereignty. View Article

 Banking Union

Commissioner McGuiness: Banking Union – New Year, new momentum : The start of the New Year gives us a chance to reflect on what’s next for the Banking Union. We cannot stop here. Completing the Banking Union is essential for the future of the Economic and Monetary Union.  View Article

Bloomberg: ECB Steps Up Scrutiny of Loan Risk Before Potential Defaults : Regulators seek more information on quality of lending books;ECB member says ‘won’t shy away’ from new capital demands View Article

ECON Brief: Banking Union: Postponed Basel III reforms : This briefing summarises the Basel Committee’s decision to postpone the implementation of the outstanding Basel III standards, their main content, and their estimated impact on banks’ capital needs.  View Article

SUERF: Buffer usability and potential stigma effects : In light of the Covid-19 pandemic and its effects on the economy and financial markets, supervisors and policy makers at the international level are concerned that banks could refrain from using its capital buffers to support lending due to pay-out restrictions following the breach of the combined buffer requirement (CBR).  View Article

EBA announces timing for the launch of its 2021 EU-wide stress test exercise : The European Banking Authority (EBA) will launch its 2021 EU-wide stress test exercise with the publication of the macroeconomic scenarios on 29 January at 18:00 CET. View Article

EBA publishes final draft technical standards to identify investment firms’ risk takers and to specify the instruments used for the purposes : The objective of these RTS is to define and harmonise the criteria for the identification of such staff and the use of instruments or alternative arrangements for the purposes of variable remuneration so as to ensure a consistent approach across the EU. View Article

 Capital Markets Union

Financial services: Commission adopts equivalence decision for US central counterparties : Today's decision is an important first step for US CCPs registered with the SEC to be recognised in the European Union. It will allow such US CCPs to apply for recognition by the European Securities and Markets Authority (ESMA). Once recognised by ESMA, these US CCPs will be able to provide central clearing services in the EU. View Article

Insurance Europe: European Long-Term Investment Funds review must make the funds more attractive to long-term investors, like insurers : Insurance Europe has published its response to a consultation conducted by the European Commission on the review of the European Long-Term Investment Funds (ELTIF) regulatory framework. View Article

EFAMA Transforming ELTIFs into a product of choice for investors : The European Fund and Asset Management Association (EFAMA) today shared its recommendations to the European Commission on measures to be taken to improve the European Long-Term Investment Fund (ELTIF) regime.  View Article

 EIOPA publishes annual report on the use of capital add-ons under Solvency II : The objective of the capital add-on measure is ensure that the regulatory capital requirements reflect the risk profile of the undertaking or of the group. Therefore, it is important that it is used by national competent authorities (NCAs) when needed and it is also important to ensure a high degree of supervisory convergence. View Article

EIOPA publishes the second paper on the methodological principles of insurance stress testing with focus on liquidity : The paper sets out methodological principles that can be used to design bottom-up stress test exercises to assess the vulnerability of insurers to liquidity shocks. The conclusions are based on the current understanding and knowledge of the liquidity risk in the insurance industry. View Article

ISDA: A Big Milestone for Benchmark Reform : ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient. View Article

Environmental, Social, Governance (ESG)

ECB's Lagarde: Climate change and central banking : Central banks are not the main actors when it comes to preventing global heating...are not responsible for climate policy and the most important tools that are needed lie outside of our mandate. But the fact that we are not in the driving seat does not mean that we can simply ignore climate change.  View Article

BIS launches second green bond fund for central banks : The euro-denominated, open-ended green bond fund for central banks builds on the success of the first, US dollar-denominated green bond fund View Article

EBF-UNEP FI report outlines path for application of EU Taxonomy to core banking services : The report is based on case studies analysing transactions and existing client relationships across a large spectrum of sectors, economic activities and geographical locations. View Article

Ten UNEP FI members call on governments to step up action on adaptation finance, make climate risk reporting commitments : At the Climate Adaptation Summit 2021, the leading financial institutions delivered a statement calling for greater action on assessment, reporting and management of the physical risks of climate change, and asking policy makers to deliver mandatory disclosure requirements on climate risk. View Article

Insurance Europe: Insurers support IFRS 17 endorsement if annual cohorts solution is included and 2023 GRI: Enabling companies to report on the SDGs : Updated guidance on linking the Sustainable Development Goals with the GRI Standards: It is now even easier for organizations to communicate their efforts to support the UN Sustainable Development Goals (SDGs), by using the most widely adopted standards for sustainability reporting. View Article

Insurance Europe and the CFO Forum have published a joint response to a consultation conducted by the European Financial Reporting Advisory Group (EFRAG) on its draft endorsement advice on International Financial Reporting Standard (IFRS) 17 – insurance contracts.  View Article

Feedback to the European standard-setting proposals in the Outreach document published by the EFRAG Project Task Force on Non-financial repo :  View Article

 ICMA compiles FinTech and sustainable finance library : ICMA has compiled a non-exhaustive list of recent publications on the topic of FinTech and sustainable finance, with a focus on bond markets.  View Article

Protecting Customers

Better Finance: ROBO-ADVICE 5.0: CAN CONSUMERS TRUST ROBOTS? : Robo-advisors are online platforms that use artificial intelligence or algorithms to process information on clients’ investment preferences, risk tolerance and loss-absorption capacity, to determine an investor profile and make a personalised and often product-specific investment recommendation. View Article

CRE/DLA Piper: GDPR fines up 39% in 2020 : Regulatory fines for data breaches under the GDPR increased 39% in Europe during the past year to €158.5m, according to new research from law firm DLA Piper. View Article

Fin Tech Regulation

BIS: Digital currencies and the future of the monetary system : Remarks by Mr Agustín Carstens, General Manager of the BIS, at the Hoover Institution policy seminar... A technological revolution is changing our economy and even money itself. In addition to improvements to existing payment systems, new digital currencies have been unleashed.  View Article

BIS: Ready, steady, go?  Results of the third BIS survey on central bank digital currency : Most central banks are exploring central bank digital currencies (CBDCs), and their work continues apace amid the Covid-19 pandemic.  View Article

 BIS: Permissioned distributed ledgers and the governance of money : Since the late 1990s, monetary theorists have regarded money in general and cash in particular as a substitute for a publicly available and freely accessible record-keeping device. Theoretically, cash could be replaced by a public ledger recording all past and present transactions. Distributed ledger technology (DLT) is such a record-keeping device that can ensure trade without a central authority – but can it do so efficiently and more robustly than traditional, centralised exchange? View Article

 Economic Policies Impacting EU Finance

ECON: EU tax haven blacklist is not catching the worst offenders : Criterion to judge if a country’s tax system is fair or not needs to be widened; Countries should not be removed from the blacklist if they only make symbolic tweaks; A 0% tax rate policy should automatically lead to being placed on the blacklist... View Article

Tax havens: MEP Giegold - Landmark decision on the EU list of tax havens: so that it can finally live up to its potential! : With a broad majority of 587 MEPs (with 50 votes against and 46 abstentions), we are making strong demands to the Commission and the Council to finally develop the EU list of tax havens into a powerful instrument against tax avoidance and tax evasion. View Article

OECD/G20 Inclusive Framework on BEPS to meet at plenary level on 27-28 : The 2021 Plenary Meeting, to be held virtually, will offer representatives from the Inclusive Framework’s 137 members an opportunity to take stock of the unparalleled transformation in international tax policy and administration over the past decade and discuss the key challenges facing the international tax system looking forward. View Article

EPC: Will corporate debt choke the post-COVID-19 recovery? : Europe’s economic recovery is threatened by the corporate debt overhang created in the wake of the pandemic. Even as vaccines roll out, Europe faces the prospect of a prolonged retrenchment as indebted firms pull back investments and repair their balance sheets. View Article

Bruegel:The nonsense of Next Generation EU net balance calculations : Estimates of payments countries will receive from the Next Generation EU instrument can be made with some degree of precision. But estimating countries' repayments up to 2058 is extremely difficult. View Article

Brexit

Bloomberg: EU Warns City of London That Brexit Finance Deal Is Distant : No deadline on equivalence, Commissioner McGuinness says; Brexit has ‘come home to roost’ for U.K., access will change. The European Union’s top financial-services official warned the City of London that any deal for the industry remains a distant prospect. View Article

Bloomberg: EU Turns the Screws on Bankers Clinging to Their London Desks : Messages from Europe signal difficult path forward for finance; World’s biggest interdealer broker was left out in the cold View Article

 FT: City warned EU will do London no favours on financial services : Former Brussels commissioner Jonathan Hill says threat to Square Mile from Europe reinforces need for reform View Article

 PIIE:How the EU-UK Brexit deal affects Britons : Highlighted provisions in the EU-UK Trade and Cooperation Agreement as of December 2020 View Article

 Vox: Brexit uncertainty and trade disintegration in Europe and beyond : Following the Brexit referendum five years ago, firms in the UK and also those in the EU and other countries operated in an environment with increased uncertainty over future trade policies. This column presents evidence of the detrimental effects of this uncertainty on trade in the UK before any changes to trade policy had taken place. View Article

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