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28 May 2010

This week in "Brussels"
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Financial Services Policy Banking Securities
Insurance Asset Management Corporate Governance/Accounting
Competition: Financial Services Brief Opinions/Commentaries Financial stability - policy analysis
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Articles from 20 May 2010 - 28 May 2010

Financial Services Policy

Task Force on economic governance held first meeting
We have found agreement on the four main objectives and also on the direction in which we will move forward for each of them, Council President Herman Van Rompuy said. The Group's priorities include greater budgetary discipline and creating effective crisis-management mechanisms.  View Article
Olli Rehn: Europe must speak with one clear voice
Speaking at the Brussels Economic Forum, Commissioner Rehn said that the EC must soon complete its ambitious agenda of reforming financial regulation and supervision as the priority is to have the legislation ready at the beginning of 2011.   View Article
IMF: Spain’s economy needs far-reaching and comprehensive reforms
Ambitious fiscal consolidation is underway, the IMF says, but needs to be complemented with structural reforms such as a bold pension reform. Also, the consolidation and reform of the banking system needs to be accelerated.  View Article
IIF Report: Global approach to resolving failing financial firms - an industry perspective
The report stresses that ambitious solutions are needed that recognize that losses resulting from a firm’s failure should be shouldered by its shareholders, its unsecured, uninsured creditors, and, in the event of remaining costs, then by the financial industry.  View Article
IOSCO principles on cross border supervisory cooperation
The Principles set out how securities regulators can better build and maintain cross-border cooperative relationships that will allow them to more effectively oversee financial services providers such as investment advisers, asset managers, hedge funds and credit rating agencies.   View Article
ECB González-Páramo: Common sense risk management practices had been abandoned
González-Páramo criticised the exclusive reliance on external assessments for the management of their credit risk. He also reminded that potential conflicts of interest were embedded in the CRAs business models and criticized the performance of their ratings in the last two years.   View Article
EBF Economic Outlook: From recession to growth amidst uncertainty
Their EMAC economists stress that, while rising government debt in the aftermath of a major financial crisis is not unusual, the current levels are unprecedented. They believe, however, that investor confidence could be restored by quickly reforming the budget rules in the euro area.   View Article
US Senate passes Wall Street reform
The US Senate passed the bill reforming the financial system. The bill is expected to create a Consumer Financial Protection Bureau, further controls on derivatives trading, a resolution system incorporating financial institutions, as well as an early warning system.  View Article
FT: Senate approves Wall Street reform bill
Banks warned that the effects of the bill were already being felt in shaken markets, FT said. They also warned against plans to force banks to spin off their swaps trading businesses as this will destabilise markets.  View Article
WSJ: Senate passes finance bill
The Senate approved the most extensive overhaul of financial-sector regulation. The legislation passed the Senate with 59 to 39 votes and must now be reconciled with a similar bill passed by the House of Representatives adopted in December.   View Article
Amendment to the Japan Financial Instruments and Exchange Act with respect to OTC Derivatives
This newsletter focuses on the provisions to improve the stability and transparency of settlement of OTC derivative transactions, including the mandatory use of a central counterparty with respect to clearing of the OTC derivatives.  View Article
Japan: New regulatory framework for commodity derivatives business
The bill of amendments to the Commodity Exchange Act will drastically alter the regulatory framework for commodity derivatives business. This article presents some of the fundamental aspects of the new regulations and provides an outline of how they affect current commodity derivatives business.  View Article
Oonagh McDonald: update on Packaged Retail Investment Products
The article concludes that many in the industry expect that the Commission’s work will not lead to a separate Directive, but that as part of or following the MiFID review, the disclosure rules will be extended and adapted to PRIPs later in 2010.   View Article

Banking

Barnier: Presentation on Commission proposal on bank resolution fund
Banks, not taxpayers, need to pay for future crises, Commissioner Barnier said. The European Commission will present specific legislative proposals in the autumn, revealing the size and contributions to these funds.   View Article
Commission sets out vision for bank resolution funds
The EC is proposing an EU network of bank resolution funds to ensure that future bank failures are not at the cost of the taxpayer or destabilise the financial system. The funds would not be used for bailing out or rescuing banks, but only to ensure that a bank's failure is managed in an orderly way  View Article
BBA does not support an EU-wide tax or levy to pay into a pan-European fund – too many questions unanswered
BBA believes that each country should strengthen its regulation and supervision. Each country needs to put in place arrangements so that if intervention is required this is paid for by the industry, and depositors are protected.  View Article
CGFS report on bank funding and liquidity management
The report investigates changes in funding and liquidity management of international banks in response to the crisis. It also presents a preliminary assessment of the consequences of greater decentralisation in funding and liquidity management for the efficiency and resilience of financial systems.  View Article
AFME doubts on the viability of bank taxes
Responding to the IMF paper on bank taxes, AFME stated that global special taxation regimes are untested, and sufficiently unwieldy and imprecise in practice. At a minimum, AFME feels that any global special taxation regime to be successful, must integrate with the global regulatory landscape.  View Article
The UK coalition programme on banking
Two parties have come together to put forward a programme for partnership government. Cameron and Clegg plan to create Britain’s first free national financial advice service, which will be funded in full from a new social responsibility levy on the financial services sector.   View Article

Securities

CESR recommends that the European Institutions introduce a pan-European short selling disclosure regime as soon as possible
CESR report includes the determination of economic exposure for the purposes of calculating a net short position; calculation of changes in a net short position and clarification of the level at which to net and aggregate short positions within an organisational structure.  View Article
Germany to widen ban on naked short selling
Germany's Finance Ministry proposed extending the prohibition of naked short selling of securities as announced last week by the BaFin. The ban would cover all stocks and Euro currency derivatives not intended for hedging.   View Article
CESR updates the list of measures recently taken by members regarding short-selling
The paper includes the statements or links to the statements published by CESR Members explaining the measures taken. However it does not compare the measures taken.  View Article
EDHEC: German ban on sovereign debt markets is counterproductive and inconsistent
Besides the fact that the lack of convergence on these issues with the US authorities leaves little hope of the measures being effective, EDHEC-Risk thinks that this ban creates legal and practical obstacles that make it inapplicable and liable to hinder European growth.  View Article
CESR intensifies co-ordination for Euro denominated debt instruments
CESR is of the view that structural reforms should be rapidly introduced to enhance the transparency, organisation and functioning of the bond and CDS markets that are currently largely OTC.   View Article
CESR published technical advice on the equivalence between the US regulatory and supervisory framework and the EU CRAs regime
In overall terms, the US legal and supervisory framework is broadly equivalent to the EU regulatory regime for credit rating agencies. CESR criterion is based on the integrity, transparency, good governance and reliability of the credit rating activities.  View Article
EDHEC risk: Radical changes in bond markets
The role of the banks is undergoing a partial shift from being an intermediary for capital allocation in the private sector to becoming more like an agent of the government, Arjuna Sittampalam argues. Also, the way of trading bonds is undergoing several radical changes affecting all participants.  View Article

Insurance

CEA sends joint letter to EC on Solvency II illiquidity premium
The letter sets out proposals for criteria to be tested in QIS 5. In addition, the paper includes three separate appendices which provide the results of quantitative analysis for a range of products. The results highlight a significant level of predictability or resilience to products.  View Article
EDHEC risk analyses the suitability of the calibration of private equity risk in the Solvency II standard formula
Solvency II prudential rules has become a major concern for the private equity industry. The capital requirements for private equity risk could lead many European insurers to reduce appreciably their asset allocation to non-listed stocks.   View Article
CEIOPS Annual report 2009 and Work Programme 2010 – new challenges to come, particularly the creation of EIOPA
The text of the Solvency II Directive sets a challenging deadline for implementation – October 2012, and CEIOPS has been capable of delivering advice on all the relevant areas of the new regime, taking into account the Level 1 Directive text and incorporating appropriate lessons from the crisis.  View Article

Asset Management

AMF welcomes CESR's adoption of the European definition of money market funds
AMF believes that the new definition will allow for an appropriate level of investor protection and is also consistent with the AMF's position, namely that investors should be able to identify those money market funds which are particularly suitable for very short-term investments.  View Article

Corporate Governance/Accounting

Deutsche Börse published second corporate responsibility report
The report was prepared and examined in accordance with the internationally recognized Global Reporting Initiative guidelines. The initiatives focus on the Deutsche Börse Group’s locations around the world and on the active involvement of its own employees.  View Article
FASB consults on revision of accounting for financial instruments
The proposal simplifies financial reporting for financial instruments by developing a consistent, comprehensive framework for classifying financial instruments, removes the threshold for recognizing credit impairments, and makes changes to the requirements to qualify for hedge accounting.   View Article
Podcast summary of May 2010 IASB meeting
Sir Bryan Nicholson, Trustee of the IASC Foundation, provides an overview of the recent enhancements to the IASC Foundation Constitution.   View Article
IASB’s questionnaire for financial statement users on fair value option for financial liabilities
The IASB asks analysts to complete the questionnaire to provide input on the proposals in the exposure draft on the fair value option. This questionnaire, targeted at analysts, forms part of a comprehensive programme of outreach activities to all IFRS constituents.  View Article
EFRAG's comments on the IASB's ED Defined Benefit Plans: Proposed amendments to IAS 19
EFRAG stressed that a review of employee benefit accounting is needed to improve the financial reporting of employee benefits. In particular, it is necessary to define appropriate accounting for “modern‟ schemes that combine features of defined benefit plans and defined contribution plans.  View Article
EFRAG disagrees with the IASB measurement model in IAS 37
EFRA believes that IASB should ensure that existing IAS 37 treatment for warranties continues to apply until new IFRS replacing IAS 18 comes into place. EFRAG also disagrees with the removal of the “probability of outflows” recognition criterion without any proper debate on this aspect.  View Article
Leaseurope: New IFRS lease accounting standard reaches unparalleled level of complexity
The leasing industry’s warns that if the hybrid model for lessors goes ahead, many leases will be accounted for in a way that completely fails to represent the economics of these transactions. “If more time is required to produce a reasonable result, then it should be taken”, Leaseurope said.   View Article

Competition: Financial Services

EC state aid Scoreboard shows reduced use of crisis support to banks
The declining use of state guarantees is an encouraging indicator that the financial sector has begun to return to normal market conditions, Commissioner Almunia said. Overall, the EC has approved guarantee umbrellas in 19 Member States amounting to €3149.8 billion.  View Article
State aid: Commission approves restructuring of Belgian insurance company Ethias
In order to finance the costs of the restructuring by its own means to the furthest extent possible, Ethias will sell or wind down its retail life insurance business and a number of other assets, which was the immediate cause of its difficulties in the past.   View Article

Brief Opinions/Commentaries

Paul Goldschmidt: The European Financial Stabilisation Mechanism - How to make it work!
Goldschmidt argues that it is of the greatest importance that the market is informed as soon as possible as to the details surrounding the implementation of the European Stabilisation Mechanism, if one wishes to avoid having to mobilise even more considerable amounts to restore stability.   View Article
Wolfgang Münchau: Is the eurozone insolvent?
Münchau argued that there is a need to focus not only on the solvency of Greece, Spain and Portugal, but also on the solvency of those who actually guarantee all those southern European debts. He also stressed that the debt-to-gross domestic product ratio is of little use on the analysis.   View Article
Bruegel: Towards a 'French-style' fiscal rule
Bruegel Director Jean Pisani- Ferry and Olivier Garnier, member of the Conseil d’Analyse Economique, explain why France needs to implement a rigorous fiscal policy that should be complemented by an operational definition of fiscal responsibility.  View Article

Financial stability - policy analysis

BIS Caruana: The great financial crisis, lessons for the design of central banks
Speaking at the ECB, Jaime Caruana highlighted that the challenge will be to refine and develop the governance mechanisms for central banks so that they retain the independence needed both to conduct monetary policy and to discharge their responsibilities for financial stability.   View Article
CGFS report on macroprudential instruments and frameworks: a stocktaking of issues and experiences
The report includes summary results from a survey of central banks on their conceptions of macroprudential policy and their use of macroprudential instruments, and from a central bank workshop on the use of macroprudential instruments relating to property lending markets.  View Article




© Graham Bishop

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