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Eurogroup/ECOFIN week produced a crop of economic rather than regulatory news, as well as a somewhat healthier Winter Economic Forecast from the Commission. But they all help to set a more positive tone for markets as the EU grapples with so many, diverse problems that certainly include reform of its fiscal rules. The SSM took a hard look at the business models of banks under it supervision – broad-brush improvements in profitability can hide weak outliers. Half a century on from “Herstatt”, the BIS has still not completely resolved the risks of cross-border payments. In the same vein, ISDA reported on the practical difficulties of operating collateral and AFME commented on the challenges from the US moving to one-day settlement. ESMA’s draft guidelines on using ESG terms as fund names stirred up concerns about the way it proposed to achieve a laudable goal. The BIS produced data showing large investors sold `crypto’ into the crisis as smaller retail investors purchased. The IMF said that it is now time to follow through on commitments on international business tax reform. Brexit seems to be heading into another of its periodic crises on the irreconcilable contradictions of the Northern Ireland Protocol.
Graham Bishop
Articles from 10-23 February 2023
Policy impacting Finance
Remarks by Executive Vice-President Valdis Dombrovskis at the ECOFIN press conference : The EU economy showed remarkable strength last year. The outlook for 2023 is somewhat brighter. It has led to slight upward revisions to our growth forecasts. We project 2023 growth at 0.8% for the EU as a whole. View Article
Remarks by Paschal Donohoe following the Eurogroup meeting of 13 February 2023 : Developments with regard to demand and storage have been reassuring, but we need to continue with our efforts to diversify our energy sources and reduce energy consumption. View Article
Remarks by Commissioner Gentiloni at the Eurogroup press conference : In October and November, gas consumption was 25% below the average for the same months over the past five years – 25% below – exceeding the target reduction that the Commission proposed at 15%. View Article
Remarks by Commissioner Gentiloni at the press conference on the Winter 2023 Economic Forecast : First, the EU economy entered 2023 on a healthier footing than expected, and looks set to escape recession. View Article
EU recovery plan: Council adopts REPowerEU : The purpose is to strengthen the strategic autonomy of the EU by diversifying its energy supplies and ending its dependency on Russian fossil fuel imports. This is the final step of the adoption procedure. View Article
EURACTIV: March showdown: When EU fiscal rules meet industrial policy : When EU leaders meet in Brussels at the end of March, the conversation over how Europe should subsidise its green transition will clash with the discussion over the reform of the bloc’s fiscal rules, providing opportunities for a compromise deal. View Article
EURACTIV: ‘Approaching crunch time’: Sluggish progress on EU fiscal rules : EU member state finance ministers met in Brussels on Tuesday (14 February) to discuss the reform of the EU’s debt and deficit rules, but their positions remain divergent, despite pressure to agree. View Article
Speech by Christine Lagarde, President of the ECB, at the plenary session of the European Parliament : The expansion of the euro area and the work we must do to complete our Economic and Monetary Union. View Article
Opening remarks by President von der Leyen at the joint press conference with President Michel following the special meeting of the European : ...And this especially against the backdrop of the Inflation Reduction Act. That was the main topic of the debate. I have presented to the Leaders our Green Deal Industrial Plan.... View Article
FSB Chair outlines work priorities for 2023 : The combination of near record-high levels of debt, rising debt service costs and stretched asset valuations in some key markets could pose serious threats to financial stability. .. Addressing vulnerabilities in the non-bank sector is a key priority. View Article
Joint Statement on the U.S.-EU Financial Regulatory Forum : The Forum emphasized close ongoing EU and U.S. cooperation in a range of areas, and focused on six themes: (1) market developments and financial stability risks; (2) sustainable finance and climate-related financial risks; (3) regulatory developments in banking and insurance;... View Article
Banking Union
SSM's Donnery: “Banks are not overregulated” : This common culture, co-operation and collaboration is something we will continue to build on in the coming years. View Article
SSM: Banks’ business models: an uncertain environment needs agile steering : In this article, we explain how banks’ profitability responded to the challenging economic situation and why we would caution against overly optimistic forecasts. Finally, we share the key lessons from our 2022 on-site inspection campaign on banks’ business models and profitability. View Article
EBA publishes final draft technical standards defining the homogeneity of the underlying exposures in STS securitisation : Homogeneity is one of the key simplicity requirements enabling originators and investors to properly assess the underlying risks while facilitating investors due diligence. View Article
BIS: Operational and technical considerations for extending and aligning payment system operating hours for cross-border payments: An extension and alignment of payment system operating hours across jurisdictions could help to speed up cross-border payments, especially between jurisdictions with significant time zone differences. View Article
Capital Markets Union
ESMA sees high risks amid fragile markets : Verena Ross, Chair "Financial markets remained remarkably stable in 2H22, despite the general volatile environment. Although economic sentiment has become more positive in early 2023, there is no room for complacency. ESMA is keeping the overall risk assessment across its remit at the highest level. View Article
Opening remarks by Commissioner McGuinness at the European Parliament plenary debate on the European Long-Term Investment Funds (ELTIFs) Reg : .. ELTIF embodies what we want to achieve with the Capital Markets Union. These long-term investment funds and the CMU are about long-term investment in the green and digital transition, and these are vital to our future. View Article
EFAMA statement on European exchanges’ bid to run a consolidated equities tape : EFAMA welcomes the recent proposal by European exchanges to build a consolidated tape. This affirms the buy-side’s long standing view that a European consolidated tape is key to completing the objectives of the Capital Markets Union and ensuring that European capital markets remain globally competitive. View Article
EIOPA moves to close data gaps by revising reporting of occupational pensions : The new decision, which will be applicable as of 1 January 2025, closes important data gaps on emerging risks and fixes inconsistencies that have been reported to EIOPA over the past years. View Article
ISDA: Automation and Data Standards in Collateral : At times of market stress, it’s critically important that collateral gets to where it’s supposed to be quickly and efficiently. Unfortunately, operational practices can sometimes come under strain. View Article
AFME comments on US move to one-day settlement cycles : “The May 2024 goal for moving to one-day settlement in the US is ambitious and will be a significant challenge for all market participants globally...." View Article
Environmental, Social, Governance (ESG)
Opening remarks by Commissioner McGuinness at the European Parliament plenary debate on the Green Deal Industrial Plan : On 1 February, the Commission presented a Green Deal Industrial Plan to make Europe the home of clean tech and innovation on the road to net zero. It is built on four pillars: the regulatory environment, financing, skills and trade. View Article
Busy Week for the EBA - Homogeneity RTS and Green Lending : The EBA published a final draft RTS on homogeneity for synthetic securitisations. In PCS’ view, this is a thoughtful and altogether excellent proposal. View Article
EBF: AN EU FRAMEWORK FOR FINANCING THE TRANSITION : The EBF proposes a transition finance framework that would enable corporates to align with EU climate objectives, while representing an effective tool to counter the risk of greenwashing. View Article
Net-Zero Asset Owner Alliance Chair highlights importance of a just energy transition at Munich Security Conference : The question remains: how do we unlock private capital to finance the transition to renewable energy? The Alliance has worked on this and we see the importance and urgency of collaborative action by all stakeholders to bring about systemic change. View Article
OECD: Improving the Landscape for Sustainable Infrastructure Financing : Infrastructure assets are exposed to long-term and complex risks creating challenges to investors in assessing and managing risks over time. View Article
IPE's Serenelli/Amorim: BVI slams ESMA’s draft guidelines on ESG, sustainability labels : The German fund industry association, BVI, has severely criticised the main elements of the draft guidelines on ESG and sustainability labels for investment funds proposed by ESMA... View Article
ALFI responds to ESMA consultation regarding Guidelines on funds’ names using ESG or sustainability-related terms : In its response, ALFI agrees that it is of utmost importance to protect investors against unsubstantiated or exaggerated sustainability claims and to have harmonized requirements to achieve this goal. However, ALFI also articulated some concerns regarding the approach suggested by ESMA... View Article
EFAMA questions the threshold approach in ESMA’s proposed guidelines on the use of ESG terms in fund names : EFAMA members have concerns around the proposed numerical threshold approach as it may not address the underlying greenwashing issues our industry is facing due to the current lack of clarity on many key sustainable finance concepts. View Article
IOSCO welcomes the ISSB’s decision to enter into the finalisation phase of its inaugural corporate sustainability reporting standards. : “IOSCO is very pleased to see the determined progress being made by the ISSB in completing this milestone. It is particularly important that the ISSB has confirmed that its standards will be ready for use as early as January 2024..." View Article
Protecting Customers
BETTER FINANCE calls on EU legislators to stop helping the expansion of large (mostly non-EU) dark traders and to protect retail investors i : As EU policymakers continue their negotiations on the MiFIR review, BETTER FINANCE is increasingly alarmed that the regulation could severely hurt retail investors, by putting in place a market structure further benefitting dark Systematic Internalisers (SIs). View Article
Fin Tech Regulation
SSM: Crypto-assets: a new standard for banks : Most banks under ECB supervision have so far largely stayed away from crypto-assets, while some have explored opportunities to use distributed ledger technology (DLT) to increase efficiency, reduce costs and offer new services to clients. View Article
Finextra: ECB to monitor digital transformation efforts at banks : The European Central Bank is to undertake targeted reviews and on-site inspections at banks after uncovering a number of shortcomings in digital transformation strategies. View Article
BDB: Tokenise Europe 2025: New initiative shows benefits of tokenisation : Europe must become more attractive for digital business models that strengthen Europe's competitiveness; A simple set of rules/better digital skills are needed to foster innovation; The Commission and the Association of German Banks launch an initiative on tokenisation with over 20 organisation View Article
BIS: Crypto shocks and retail losses : A new data set on retail holdings of cryptoassets reveals that in the wake of the Terra/Luna collapse and the FTX bankruptcy, crypto trading activity increased markedly, with large and sophisticated investors selling and smaller retail investors buying. View Article
finextra: FSB says many current stablecoins will not meet future regulatory standards : The Financial Stability Board has warned that many existing stablecoins would fail to pass muster under new risk management rules currently being formulated. View Article
FSB assesses financial stability risks of decentralised finance (DeFi) : DeFi is commonly used to describe services in crypto-asset markets that aim to replicate some functions of the traditional financial system in a supposedly decentralised manner – though the actual level of decentralisation varies widely. View Article
Economic Policies Impacting EU Finance
IMF blog: The Unfinished Business of International Business Tax Reform : Most countries in the world agreed on a major tax reform in 2021. Now it’s time to follow through with implementation. View Article
Broadening the International Role of the Euro
CEPR's Ilzezki/Jain: Euro weakness in 2022 : Analysts have described 2022 as the ‘worst year in the euro’s history’. The January 2023 CfM-CEPR survey asked the members of its European panel about the reasons for the euro’s deprecation against the dollar in 2022. View Article
Brexit and the City
FCA seeks views on updating asset management regulation : The Financial Conduct Authority (FCA) is seeking views on what regulatory change might help the UK’s asset management industry innovate, better support the investors it serves and boost competition. View Article
Economic Secretary speech at the Association of British Insurers’ Annual Conference : The Economic Secretary delivered a speech at the Association of British Insurers’ Annual Conference highlighting government action to promote growth and competitiveness in the sector, including reform of burdensome EU-era Solvency II rules View Article
Brexit
Bloomberg: UK’s Sunak Suggests He’ll Seek Brexit Treaty Change From EU : British premier says he hears DUP concerns ‘loud and clear’; UK Parliament will have a say on any new Brexit deal: Sunak View Article
UK TPO's Winters: Is it really true that Brexit has had no harmful effects? : "GJW" raise some legitimate questions. But their cherry-picking of evidence grates, their accusation that others fail to “interrogat[e] data sufficiently rigorously” is ironic given that they then proceed precisely in that fashion, and the tone of righteous victimhood is just risible. View Article
Uk in a changing EU: Civil society can reinforce the bridges between the EU and the UK : Jack O’Connor, Chair of the European Economic and Social Committee’s EU-UK Follow-up Committee, sets out the findings of a recent delegation to the UK which looked at relations between EU and UK civil society and the impact of the Withdrawal Agreement. View Article
Federal Trust's Stevens, Donnelly: Brexit and a Broken Britain : In this video, our Chairman John Stevens and Director Brendan Donnelly discuss the recent secret meeting of Labour and Conservative politicians with a view to “making Brexit work”. View Article
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