Welcome to our Friends weekly e-mail.
Highlights of my week: Recently, I have been focussing attention on the implications for financial services of the clock running down on the remaining legislative time in the mandate for this Commission and Parliament. But what if the clock never starts for the next Commission? Today, the Parliament votes on whether it is appropriate for Hungary to take over the rotating Presidency of the EU on schedule on 1 July 2024. Big questions continue to be posed about the nature of the EU’s financial system: deposit stability, market versus funding liquidity, bank versus non-bank intermediation, the implication of the rising relative cost of EU borrowing, counter-party credit risk, dealing with novel risks for banks… CEP’s Lanoo is absolutely right when he says that mutual funds are the key to CMU – citizens need a trusted, cheap and effective way to deploy their savings beyond (unstable?) bank deposits. MiCA is done – so bring on MiCA II, or so it seems that ECON’s study is calling for. ESMA is launching a fifth stress test for CCPs (including the two UK ones) just as the UK proposes amendments to its own run-off regime. Is the UK the right place to do crypto business? UK Finance poses the question…. Just twenty years ago, then-Chancellor Gordon Brown stopped the UK join the euro with his famous “five economic tests”. As an Adviser to the House of Commons Treasury Select Committee that examined these so-called tests, should they have been called out more strongly as personal, political posturing? There could not have been Brexit subsequently.
Graham Bishop
Articles from 26 May - 1 June 2023
Policy impacting Finance
EURACTIV: Will Hungary get cancelled? : The European Parliament will on Thursday (1 June) question Hungary’s ability to hold the six-month rotating presidency of the EU Council, scheduled between July and December 2024, citing Budapest’s problems with the rule of law, according to a draft resolution View Article
EPC's Mucznik: The European Political Community: From Prague to Chisinau and beyond : As war still rages on the continent one year on, the European Political Community remains a geopolitical necessity. Yet, consistent follow-up, more investment, and strategic direction are needed if the EPoC stands to succeed in addressing the challenges of a new era. View Article
Financial Stability Institute's Restoy: The quest for deposit stability : Recent bank failures spotlight the significant increase in non-covered deposits and the structural risks posed by banks' reliance on them. A larger demand for banks' deposits can well result from a specific juncture characterised by ample liquidity and low opportunity costs with low market rates. View Article
CEPR's Honahan: Lessons from missing the signals of failing banks : Barr [Report] is a valuable acknowledgment and dissection of the supervisory failures, it glosses over one of the most important: the failure to realise six months ago that the bank was likely to fail and needed to be dealt with by the Federal Deposit Insurance Corporation as resolution authority. View Article
ECB Financial Stability Report: Gauging the interplay between market liquidity and funding liquidity : The ability of market participants to access funding and conduct transactions in an efficient way is a prerequisite for financial stability, providing shock-absorption capacity and, in turn, limiting the scope for shock amplification. View Article
ECB Financial Stability Report: Key linkages between banks and the non-bank financial sector : Banks are connected to non-bank financial intermediation (NBFI) sector entities via loans, securities and derivatives exposures, as well as funding dependencies. Linkages with the NBFI sector expose banks to liquidity, market and credit risks. View Article
Bruegel: The rising cost of European Union borrowing and what to do about it : The European Commission should continue to try to narrow the spread with major European sovereigns by further developing the relevant market infrastructure and improving its issuance strategy. View Article
ESAs launch discussion on criteria for critical ICT third-party service providers and oversight fees : The European Supervisory Authorities (EBA, EIOPA and ESMA - ESAs) today published a joint Discussion Paper seeking stakeholders’ input on aspects of the Digital Operational Resilience Act (DORA). View Article
Banking Union
EBA consults on amendments to the Guidelines on money laundering and terrorist financing risk factors to include crypto-asset service provid : CASPs as well as other credit and financial institutions are exposed to ML/TF risks. For CASPs, these risks can be increased, due to, for example, the use of innovative technologies, instant transfers of crypto assets across the world and services that contain privacy-enhancing features. View Article
EBF reaction to EU AML/CFT framework : Bearing in mind the necessary lead-time and efforts to get the AML Package adopted and implemented, this momentum is a unique opportunity to improve the framework and cannot be missed. View Article
ESBG addresses to Commissioner McGuinness on the review of the second Payment Services Directive : Letter to Commissioner to draw her attention to two crucially important matters for the banking sector, namely combating authorised push payment scams and fraud and ensuring a fair distribution of value and risk in open banking. View Article
EBA publishes results on impact and calibration of standardised approaches for counterparty risk : The European Banking Authority (EBA) today published its Report on the impact and calibration of the Standardised Approach to Counterparty Credit Risk (SA-CCR), simplified SA-CCR and Original Exposure Method (OEM). View Article
EBA consults on new RTS and ITS on supervisory colleges : View Article
SSM's McCaul/Walter: Overlays and in-model adjustments: identifying best practices for capturing novel risks : It’s a fact of life for supervisors that they constantly face new risks that need to be assessed. While the gloomy outlook of the pandemic is receding, a stream of emerging risks has arisen. View Article
Capital Markets Union
CEPS' Lanoo: Mutual funds hold the key to a genuine capital union in Europe : Policymakers argue that the huge costs of the green and digital transitions cannot be financed with state funds alone. They are correct — but that’s where it stops. Concrete proposals are lacking. View Article
EBF: Joint statement on the review of the distance marketing of financial services directive : We acknowledge the value of enhancing the “safety net” feature of this newly introduced legislative text, as well as those principles underpinning consumer protection, namely the right to withdraw. However,... View Article
PensionsEurope answer on the IORP of EIOPA's consultation for the EC CfA : PensionsEurope has submitted its response to EIOPA’s consultation on technical advice for the review of the IORP II Directive View Article
BETTER FINANCE response to EIOPA consultation on technical advice on IORP II review : EIOPA consulted on the review of IORP II Directive, which governs occupational pension schemes in the EU. BETTER FINANCE's response to the consultation focuses on protecting the interests of pension scheme participants. View Article
FT: Brussels proposes tough targets for live trading database operators : Commission has suggested minimum turnover for companies running consolidated tape service View Article
ESAs consult to amend technical standards on the mapping of ECAIs’ credit assessments : The proposed amendments reflect the outcome of a monitoring exercise on the adequacy of existing mappings, namely those to the credit quality steps (CQS) allocation for four ECAIs and the introduction of new credit rating scales for seven ECAIs as well as the withdrawal of the registration of one ECAI. View Article
ESMA launches Fifth Stress Test Exercise for Central Counterparties : Fourteen CCPs authorised in the EU and two UK CCPs classified as Tier 2 (LCH Ltd, ICE Clear Europe Ltd) are included in this exercise. View Article
Environmental, Social, Governance (ESG)
Financial Stability Institute: Climate risks: scenario analysis : To help central banks and supervisors, the Network for Greening the Financial System (NGFS) published a guide on scenario analysis to assess climate risk impacts. It published reference scenarios increasingly used by public and private sector players to analyse climate-related financial risks. View Article
Delors Centre: Do more with more - How the EU can improve funding for the European Green Deal : .. However, overly ambitious target volumes backed by only limited public financial support, and the resultant high levels of leverage, prevent InvestEU from delivering its full potential for achieving the green transition... View Article
IFAC: With mandatory climate disclosure on the horizon, new guide shows accountants how to get greenhouse gas reporting in order : The guidance is a response to rapidly escalating impacts of climate change and emerging mandatory requirements that companies disclose robust information about their GHG emissions and climate risks and opportunities to help investors allocate capital to the ‘greenest’ companies. View Article
EuropeanIssuers joint statement on Corporate Sustainability Due Diligence Directive (CS3D) : EuropeanIssuers, in collaboration with 35 European associations, has issued a joint statement urging the business community to refocus its attention on the objectives of the European Commission's proposed directive on corporate sustainability due diligence (CS3D). View Article
BDB: More capital for more environmental protection? : EU taxonomy to provide clarity for four additional environmental objectives View Article
Joint-Committee publishes final draft of sustainability disclosure templates for STS : To remind everyone, the original STS rules passed in 2017 required mortgage and auto transactions to disclose sustainability information for the underlying assets but only to the extent it was available to the originator. View Article
IFAC, TI-UK, and World Economic Forum’s PACI Review of Anti-Corruption Reporting Sheds Light on Current Practice & Encourages Increased Tran : The report decodes the current state of anti-corruption reporting practices and highlights the urgent need for enhanced quality, reliability, and comparability in this crucial area. View Article
IASB begins planned review of financial-crisis-era reform to loan-loss accounting : The main objective of the requirements in IFRS 9 is to provide investors with more useful information about a company’s expected credit losses. View Article
Fin Tech Regulation
Study for ECON: Remaining regulatory challenges in digital finance and crypto-assets after MiCA : It analyses the need to adopt further EU financial regulation on decentralized finance after the implementation of the MiCA Regulation and revision of Transfer of Funds Regulation, especially on crypto lending, staking, custody, the use of non-formal information, NFTs and sustainability. View Article
ESRB publishes report on cryptos and decentralised finance : The report finds that while this past year has been turbulent for cryptos and DeFi, the impact on the financial system was limited. The crypto market has few interlinkages with the traditional financial sector and the real economy, and none of those links are currently significant. View Article
Financial Stability Institute: Prudential treatment of cryptoasset exposures : BCBS finalised its standard on the prudential treatment of cryptoasset exposures in December 2022. The standard outlines minimum regulatory, supervisory review and disclosure requirements of banks' cryptoasset exposures under Pillars 1, 2 and 3 of the Basel Framework. View Article
EPI contributed to the prototyping exercise conducted by the European Central Bank : EPI contributed to the prototyping exercise conducted by the European Cental Bank (ECB) to test how design choices for a digital euro could be implemented into existing European payments solutions. View Article
Finextra: BIS panel to promote harmonisation of API protocols in cross-border payments : BIS's Committee on Payments and Market Infrastructures (CPMI) is asking cross-border payment service providers, financial infrastructures, industry associations and central banks to nominate API experts to join the panel. View Article
Economic Policies Impacting EU Finance
CEPR: Fiscal consequences of corporate tax avoidance : Bilicka, Dubinina, Janský: Multinational corporations routinely shift their profits to tax havens globally in order to benefit from low-tax environments. View Article
Brexit and the City
Joint statement from FCA, PRA and Bank of England on the government’s proposed amendments to the CCP run-off regime : The FCA and the PRA are responsible for the supervision of regulated banks to which certain central counterparties (CCPs) provide services. The Bank of England is responsible for the supervision of CCPs in the UK. View Article
City of London: From commitment to action | tracking UK financial services’ progress on the pathway to net zero : Global financial services institutions are ramping up their effort to address the climate crisis. Many of them have made formal climate commitments and joined key initiatives, such as the Glasgow Financial Alliance for Net Zero (GFANZ). View Article
IRSG: Response to updated Green Finance Strategy : The chairs of TheCityUK’s Green and Sustainable Finance Group and the IRSG ESG Committee wrote to Baroness Penn, Parliamentary Secretary, HMT, following the publication of the Update to the Green Finance Strategy. View Article
UK Finance: Aligning the UK’s rhetoric on crypto assets with the regulation : Most crypto firms are ready to accept regulations; they just need to know what they are. As crypto businesses prepare to be a part of the financial services’ regulatory framework, will the ambiguity in communications coming out of the UK cause firms to look elsewhere? View Article
Brexit
EU-UK relations: EU takes further steps to implement the Windsor Framework : The Council today adopted three regulations aimed at implementing the joint solutions agreed with the UK regarding public, animal and plant health issues, medicines and certain steel products. View Article
FT: UK has no plans to strike US trade deal during Rishi Sunak visit to Washington : Britain’s prime minister to hold talks with Joe Biden next week View Article
Prospect's Wallace: Twenty years ago, Britain could have backed joining the euro—and stopped Brexit : If Gordon Brown had reached a different judgment on his famous “five tests”, what might have been the economic consequences? View Article
electionmapsuk: EU REFERENDUM VOTING INTENTION : 31 May ---Rejoin: 44.9%; Stay out: 32.7% View Article
LSE's Dinan: Ireland and the art of small-state-ism : Ireland suffered a catastrophic economic collapse during the Eurozone crisis, yet within just a few years, it managed a rapid economic and reputational recovery. Ireland owes much of its success to ‘small-state-ism’ – the ability to leverage its status as a small member state to its advantage. View Article
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