Welcome to our Friends weekly e-mail.
Please note: We will not publish a `weekly’ next week but then publish the final edition before the summer holidays on 20th July.
Read my latest publication “Has the City of London benefitted from Brexit as the golden days continue to fade?”
Highlights of my week: The European Council meeting did not produce anything of specific note for financial services and the incoming Spanish Presidency’s priorities in this field are the routine “completion of the banking union and the capital markets union”. The good news is that political agreement was reached on the MiFIR review – especially on the consolidated tape and payment for order flow. Worryingly, AFME reported that “equity market liquidity is leaving Europe” but that can hardly be surprising in the light of Invest Europe’s latest performance data for private equity returns versus those in public markets. The FSB and IOSCO are proposing measures to deal with the liquidity mismatch that is possible in open-ended funds. ECB experts provided a paper to SUERF that highlighted the scale – and stress - of margin calls by CCPs, while EFAMA worried from the buy side about possible risks from mandatory clearing in the EU rather than organic growth. Several professional associations commented on the SFDR Delated Regulation. The Actuaries published an interesting paper from their perspective of climate risk scenarios for the financial sector rather than the economists /scientists who wait for certainty of events. The Brexit legislation for the City (FSMA 2023) became law and the FSA moved quickly to propose changes to Solvency II but my new publication analysed the growing problems for the City.
Graham Bishop
Articles from 30 June- 6 July 2023
Policy impacting Finance
EPC's Domenech: Spain has the EU Presidency. But who will lead Madrid after the snap election? : Spain holds the so-called 'golden presidency', the last fully operative presidency before the European elections in June 2024. Therefore, the Southern European country was expected to make progress and finalise several legislative files currently under discussion before the end of the term. View Article
POLITICO: Italy set to delay eurozone bailout fund reform that helps banks : MPs are voting on Wednesday to postpone ratification to November, as an end-of-year deadline looms. View Article
ECON: Economic Dialogue with Paschal Donohoe, President of the Eurogroup : It addressed issues such as the appropriate fiscal stance, policies to support the recovery and long-term growth, the EU economic governance framework for the smooth functioning of the EMU, the strengthening of the Banking Union, the euro as a digital euro and the international role of the euro. View Article
CEPR: Putting the fiscal toothpaste back into the tube: It’s time to normalise the euro area fiscal stance in 2024 : Niels Thygesen Roel Beetsma Massimo Bordignon Xavier Debrun Mateusz Szczurek Martin Larch Matthias Busse Mateja Gabrijelcic Laszlo Jankovics Janis Malzubris View Article
Banking Union
SRB Publishes Annual Report for 2022 : The report details the work of Europe’s Single Resolution Board and highlights the progress made in making Europe’s banking sector more stable, by ensuring all of the SRB’s banks make themselves resolvable. View Article
EBF: Basel III agreement to further strengthen resilience of European banking sector, while maintaining its ability to finance growth : The EBF notes the agreement reached by the Swedish Presidency of the EU with the European Parliament and the European Commission on the Banking Package, a core legislative piece that will transpose into EU law the Finalisation of Basel III as well as other prudential topics. View Article
EPIF welcomes the new Open Finance proposal : Our members welcome its ambition to leverage the data economy to enhance growth and innovation in the financial sector. View Article
GBIC comments on EBA’s consultation on the draft ITS to amend Regulation with regard to the specific reporting requirements for market risk : View Article
Capital Markets Union
ECON: Agreement on better access to market data and robust EU market infrastructures : Parliament negotiators struck a provisional deal on rules to enhance market data transparency, optimise orderly trading and prohibit receiving payments for forwarding client orders. View Article
Commission welcomes political agreement on the review of the Markets in Financial Instruments Regulation : It creates a mandatory framework for the ‘consolidated tape. The review contains also a prohibition of the practice of ‘payment for order flow’ (PFOF) to increase the quality of execution and the amount of retail orders being performed on transparent and competitive public markets. provider (CTP)’. View Article
ICMA: Political agreement reached on MiFIR review : ICMA welcomes the agreement to remove the pre-trade reporting requirement related to Request-for-Quotes (“RFQs”) to systematic internalisers (SIs). ICMA has long argued that the regime is disproportionately onerous and generally not used. View Article
AFME: Equity-Market Liquidity Is Leaving Europe : European equity markets are facing a worrying problem. Liquidity is leaving Europe, and if the current state of affairs remains unchanged, this trend is probably set to continue. View Article
BETTER FINANCE: Listing Act Review - EC Package Proposal : BETTER FINANCE welcomes the objectives of the Listing Act review to make EU Capital Markets more attractive for companies, particularly for SMEs.[1] Investor associations have long emphasised the fact that to revitalise the Capital Markets Union, the EU’s primary and secondary markets need a boost, with greater participation from EU households in direct equity investments. View Article
FSB consults on policies to address vulnerabilities from liquidity mismatch in open-ended funds : Proposed revisions to FSB policy recommendations to address vulnerabilities from liquidity mismatch in open-ended funds (OEFs) incorporate lessons learnt since 2017 and aim to enhance the resilience of non-bank financial intermediation. View Article
IOSCO Proposes Detailed Guidance for Open-Ended Fund use of Anti-Dilution Liquidity Management Tools : The Board of IOSCO published a consultation report on Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes. View Article
EFAMA: Open-ended funds and resilient capital markets - the perspective of the European asset management industry : View Article
SUERF: CCP initial margin models: A peek under the hood : Ismael Alexander Boudiaf (ECB), Martin Scheicher (ECB/SSM), and Francesco Vacirca (ECB): In recent stress episodes, the margin calls of Central Counterparties (CCPs) reached unprecedented levels, raising liquidity risk for some market participants in Europe and US. View Article
EFAMA: Buy-side experts worried that mandatory active accounts for EU clearing could increase systemic risks, not lower them : Panelists expressed the view that EU CCP volume would most benefit from organic growth driven by expedited regulatory processes and additional requirements on margin model transparency. View Article
Invest Europe: European private equity returns widen lead over public markets in 2022 : European Buy-Outs delivered a net IRR of 15.17%, over 950 basis points ahead of the 5.52% return for the MSCI Europe to the end of 2022 View Article
PensionsEurope newsletter : European Commission’s upcoming consultation on the review of the SFDR Level 1; Open Finance; DORA; Withholding taxes; CSDDD; Sustainability Reporting Standards; CEEC Forum 2023; C&S Seminar 2023; World Pension Alliance 2024 View Article
Environmental, Social, Governance (ESG)
ICMA responds to ESAs’ joint consultation on the review of the SFDR Delegated Regulation : ICMA respsonded with a dedicated Taskforce between its Asset Managers and Investor Council and the Executive Committee of the Principles. It highlighted concerns. View Article
GBIC comments on Review of SFDR Delegated Regulation regarding PAI and financial product disclosure : GBIC fully supports the EU Action Plan on financing sustainable growth. Our associated members (Banks/Savings Banks) are committed to contributing to the goal of reorienting capital flows towards sustainable investments by developing investment strategies and issuing products that serve different sustainability preferences of clients. View Article
EBF response to the Joint Consultation Paper on the review of SFDR Delegated Regulation regarding PAI and financial product disclosures : Alignment of PAIs with mandatory ESRS (European Sustainability Reporting Standards)indicators to be reported under the CSRD (corporate Sustainability Reporting Directive) would greatly help implementation of SFDR (Sustainable Finance Reporting Directive) and the reporting on these indicators as it would minimize the need for bilateral engagement or the use of proxies. View Article
EFAMA’s latest Market Insights shows fluctuations in the SFDR fund market and makes policy recommendations for the future : This Market Insights presents the latest trends in the Sustainable Finance Disclosure Regulation (SFDR) Article 8 and Article 9 fund markets. It looks at developments since the onset of SFDR in early 2021, with a particular focus on changes in the second half of 2022, and sheds light on evolutions at a country level. It also provides an overview of outstanding regulatory issues and EFAMA recommendations concerning the SFDR. View Article
Institute/Faculty of Actuaries: The Emperor’s New Climate Scenarios : Using actuarial principles to examine current climate-change scenario analysis limitations and assumptions yields a number of worrying observations, including - Many current climate-change scenario models are understating risk, showing benign, or even positive, economic impacts... View Article
CEPR: Climate risk stress tests underestimate potential financial sector losses : Henk Jan Reinders Dirk Schoenmaker Mathijs Van Dijk : Given the complexity of the link between climate shocks and financial sector outcomes, the authors argue that current methods have several key limitations that may lead to significant underestimation of potential financial sector losses. View Article
ICMA: Industry led working group launches consultation on Code of Conduct for ESG ratings and data providers : There have been calls for closer scrutiny of the transparency, quality and reliability of ESG ratings and data products, to provide the market with confidence. View Article
Project Syndicate's Pisani-Fery: Can Climate Investment be Financed by Debt? : More than half of EU countries had debt-to-GDP ratios above 60% at end-2022 with governments facing contradictory demands to invest in emissions reductions and to lower their debt ratios. If the European Union is serious about fighting climate change, it cannot keep ignoring this policy dissonance. View Article
IAIS welcomes finalisation of ISSB disclosure standards : The IAIS welcomes the ISSB’s publication of its inaugural standards for general sustainability and climate-related disclosures as it will improve the quality and comparability of sustainability and climate risks reporting globally View Article
Stakeholders reminded of IFRS accounting requirements for climate-related matters in financial statements : The IASB’s Standards require companies to consider climate-related matters in their financial statements if the effects of those matters are material. View Article
Fin Tech Regulation
EPIF welcomes the Digital Euro proposal : EPIF members welcome the introduction of any new payment solution that allows the industry to respond to changing customer needs and offers new and seamless payment solutions to their customers. View Article
Economic Policies Impacting EU Finance
IMF blog: Crypto Poses Significant Tax Problems—and They Could Get Worse : Tax systems need updating to cope with crypto assets, whose anonymity and decentralized nature poses challenges—not least for the value added tax by Katherine Baer, Ruud de Mooij, Shafik Hebous, Michael Keen View Article
Brexit and the City
Graham Bishop: Has the City of London benefitted from Brexit as the golden days continue to fade?Three years after leaving the EU, there are no discernible signs of any benefits for UK finance. Instead, there are multiplying, and worrying, signs of a lack of substance to the initial, bold slogans. View Article
City of London: Response to the Financial Services and Markets Bill receiving Royal Assent : Hayward “It is fantastic to see the Financial Services and Markets Bill receive Royal Assent. This bill presents us with a huge opportunity to ensure the UK’s world-leading financial service ecosystem remains open, innovative, and attractive to global talent...." View Article
FCA: Financial regulator sets out further reforms to improve markets and bolster competitiveness : A series of measures to help strengthen the UK’s leading position as a global ... financial centre have been announced by the FCA. ... To help all investors make better, more timely decisions, the FCA is proposing to set up a consolidated tape (CT), so they can get clear and low-cost trading data. View Article
FCA: The PRA consults on major elements of the new Solvency UK framework, with measures to simplify the framework, improve flexibility, and : The Prudential Regulation Authority (PRA) is consulting today on a major set of reforms to Solvency II with the aim of creating a new UK regulatory regime for insurance firms, known as Solvency UK, which is better adapted to the UK insurance market. View Article
AFME welcomes UK Consolidated Tape proposal : “The UK financial regulator has today set out further details of how it plans to make UK markets more competitive, including a focus on a single consolidated tape provider per asset class. This is a welcome step as it will help to ensure that associated data costs remain as low as possible... View Article
UK Finance: Our equity markets: building a robust and competitive UK listing regime : In this blog, we focus on the latest regulatory chapter in this evolving debate, which has its roots in the review of the UK’s listing regime kicked-off by Lord Hill in November 2020. View Article
FT: Wigley - The UK needs to lead in securities tokenisation : The country’s financial industry cannot be left behind in a trend that will lower costs and risks in markets View Article
Brexit
LSE's Diamond: How Brexit became an exercise in ‘muddling through’ : Brexit has fundamentally altered the UK’s relationship with Europe, but yet to redefine the structures and processes of the British state, writes Patrick Diamond. Rather, the institutional response to Brexit has become an exercise in ‘muddling through’, which is increasingly coming under strain. View Article
UKandEU's Moloney/Usherwood: What might the review of the trade and cooperation agreemen actually be ike? : A review of the UK-EU Trade and Cooperation Agreement is due to start in May 2026. With more attention now being given to what the review might look like, Simon Usherwood and David Moloney outline three paths that might be followed when it comes around. View Article
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