Welcome to our Friends weekly e-mail.
Highlights of my summer: A bumper edition as we return to workready to `clear the decks’ for a `clean slate’ for the incoming Parliament and Commission next year. A major topic will be the fiscal rules governing the euro area’s public finances so I have re-published my work three decades ago (link) on the potential role of “market discipline” as an enforcement mechanism but the other side of that coin would be a “safe asset” for the financial system that would also boost the international role of the euro.
This weekend’s G20 meeting has triggered the FSB to reflect on the vulnerabilities flowing from liquidity strains and the IMF to consider the implications of persistent historically-normal interest rates. However, the EBA’s 2023 stress test underlined the resilience of the EU’s banking system and the SRB pointed to the near fulfilment of MREL targets. Several professional bodies responded to the FSB/IOSCO enquiries about liquidity risks of open-ended funds and they also gave their support to the Commission’s Retail Investor Strategy but all attached a “however” rider! The ISSB’s two new standards continue to gain support and – crucially for global compliance – the Commission published its European Sustainability Reporting Standards (ESRS) carefully dovetailing with the ISSB’s – thus underlining the EU’s first-mover advantage compared with say post-Brexit UK. The ECB’s plans for a digital euro are coming under increasing scrutiny from the European Parliament – amongst others.
For eighteen months now, the UK electorate has increasingly realised that Brexit was an act of self-harm that will leave future historians struggling to comprehend the rationale. The gap has now reached 49% Rejoin v 33% Stay out.
Graham Bishop
Articles from 20 July - 7 September 2023
Policy impacting Finance
Graham Bishop - Anthology of papers on Market Displine in EMU 1989/1993 : My central point was that public debts denominated in a currency that a government could not order to be “printed” – the euro – had a fundamentally different credit quality than paper money that could be printed at will – in extremis. But this was an `inconvneient truth' at the time. View Article
POLITICO: Right wing set for big gains in 2024 EU election, polling shows : Still, a grand coalition of center right, socialists and centrists would keep a majority. View Article
POLITICO: 9 ways Dutch political paralysis hits the EU : Political limbo likely to hold back the Netherlands’ influence on key files in Brussels. View Article
EURACTIV: ECB-Panetta: Capital Markets Union might require EU fiscal capacity : The outgoing member of the executive board of the ECB, Fabio Panetta, argued that a genuine Capital Markets Union (CMU) would require the availability of a permanent European safe asset, which would, in turn, need the EU to have a standing fiscal capacity with a borrowing function. View Article
Bruegel's Pench:Making sense of the European Commission’s fiscal governance reform plan : This Policy Brief offers proposals to enhance institutional self-commitment to implementation, with reputational consequences for non-implementation. View Article
FT - Moritz Kraemer: Italy harms itself by blocking changes to crisis-fighting in eurozone : The ECB can break the impasse by putting pressure on Rome to approve the European Stability Mechanism treaty - see also reply letter from Sabatini of Italian Bankers Association. View Article
Eurobarometer: Majority of Europeans consider that the green transition should go faster : A huge majority of Europeans believe climate change is a serious problem facing the world (93%), according to a new Eurobarometer survey published today. View Article
Financial system remains vulnerable to further liquidity strains, FSB warns : A key area of policy focus in 2024 is addressing financial stability risks from NBFI leverage. View Article
IMF: Tracking Global Financial Stability Risks From Higher Interest Rates : Financial-sector assessments are gauging the effects of elevated borrowing costs, and the prospect that central banks may keep policy rates higher for longer than investors expect View Article
Banking Union
Commission adopts reporting rules on banks’ exposure to shadow banking : These standards set out criteria for the identification of shadow banking entities, ensuring the harmonisation and comparability of exposures reported by credit institutions. The standards will also provide supervisors with robust data to assess banks’ risks in relation to non-banking financial intermediaries. View Article
EBA publishes the results of its 2023 EU-wide stress test : The results of the 2023 EU-wide stress test show that European banks remain resilient under an adverse scenario which combines a severe EU and global recession, increasing interest rates and higher credit spreads. View Article
AFME says actions to strengthen resilience are paying off in response to 2023 EU-wide stress test results : ...this year’s stress test shows that the steps that both banks and supervisors have taken over the years to strengthen the resilience of the EU banking sector are now paying off. View Article
Single Resolution Board publishes MREL dashboard Q1.2023 : Banks continued to make progress in building up their levels of MREL, with, on average, increased reliance on senior debt for meeting their targets. View Article
SSM: Public consultation on the draft Guide on financial conglomerate reporting of significant risk concentrations and intragroup transactio : This consultation gives interested parties the opportunity to comment on the draft Guide on financial conglomerate reporting of significant risk concentrations and intragroup transactions. View Article
Capital Markets Union
AIMA responds to global standard setters’ consultations on liquidity management in open-ended funds : Proposals to impose more uniform use of liquidity management tools across open-ended funds do not recognise the wide universe of funds and the needs of their investors. View Article
ALFI responds to the FSB Consultation addressing Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds : The combined proposed regulatory framework from IOSCO and FSB pursues significant strengthening of liquidity management by OEF managers. View Article
ICMA AMIC responds to FSB consultation on liquidity mismatch in OEF : ...we consider that a clear distinction should be made between non-regulated funds and asset managers vs. regulated funds and asset managers... View Article
EFAMA: EC "HAVE YOUR SAY" consultation on the EU Strategy for Retail Investors : EFAMA welcomes the publication of the RIS and commends several positive aspects... and efforts to simplify access to the "professional investor" status and tackle financial influencers. Nonetheless, we have substantial concerns ... View Article
Insurance Europe:The EU Retail Investment Strategy package: a chance to empower consumers and achieve CMU goals : The work on the Retail Investment Strategy (RIS) package at EU level is an important opportunity to empower consumers and stimulate their participation in financial markets, while making the regulatory framework simpler and more consistent. View Article
AFME says “value for money” benchmark needs refinement for EU Retail Investor Strategy to deliver : AFME strongly supports the Commission’s objective of making the distribution of securities to European retail investors more efficient. However... View Article
ALFI submits a position paper on the European Commission proposal on a retail investment package (RIP) : ALFI welcomes as such the goals of the RIP, notably that retail investors should receive adequate value for money, the aim of improving transparency...Nonetheless, ALFI is very much concerned about some aspects of the proposed omnibus Directive,... View Article
ICMA responds to the ESMA consultation on the draft regulatory technical standards under the revised ELTIF regulation : The importance of maintaining flexibility to facilitate the ELTIF manager to act in the best interest of investors and implement the most appropriate liquidity management tools; View Article
EFAMA The newly revised ELTIF regime will only be successful if ESMA maintains sufficient flexibility : The number of ELTIFs has grown from only 20 in late 2021, to 95 as of August 2023, as a result of the beneficial ELTIF Regulation reforms. ESMA is currenly finalising technical rules View Article
FSB invites feedback on the effects of G20 financial regulatory reforms on securitisation : Implementation of the securitisation reforms is advanced and has progressed to a stage where an evaluation of their effects is feasible. The FSB evaluation will assess the extent to which the G20 reforms on securitisation implemented to date have achieved their financial stability objectives. View Article
PCS: An invitation for feedback from the FSB (...no, not that one) : Europe's FSB has not provided any specific questions ... So it is a very open canvas on which respondents will need to decide what they want to paint. Some may wonder whether there is much, if any, point in responding. View Article
CPMI and IOSCO report highlights the need for central counterparties to have adequate resources and appropriate tools to address non-default : CCPs must have policies, procedures and plans to address NDLs in accordance with the Principles for Financial Market Infrastructures (PFMI) because, if not managed properly, the financial consequences of non-default events can threaten a CCP’s viability. View Article
ESRB publishes policy options to address risks in corporate debt and real estate investment funds : The European Systemic Risk Board (ESRB) has today published an issues note describing how the EU regulatory framework for investment funds, which is currently being revised, could enhance the prevention and mitigation of systemic risks. View Article
Environmental, Social, Governance (ESG)
The Commission adopts the European Sustainability Reporting Standards : The standards cover the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights. They provide information for investors to understand the sustainability impact of the companies in which they invest. View Article
IOSCO Chair welcomes European Commission’s Publication of ESRS, integrating ISSB standards as endorsed by IOSCO : The announcement illustrates the importance of the ISSB standards, which were recently endorsed by IOSCO as a global framework for sustainability-related disclosures in the interest of investors and issuers. View Article
ISSB Vice Chair Sue Lloyd delivers keynote speech on the current agenda of the ISSB and cooperation with EU Institutions : There has also been confusion around the myriad standards and frameworks, with companies and investors seeking clarity and guidance. ...The ISSB Standards exist to enhance investor-company dialogue through addressing these challenges. View Article
EFRAG-GRI JOINT STATEMENT OF INTEROPERABILITY: GRI and EFRAG are pleased to confirm that they have achieved a high level of interoperability between their respective standards in relation to impact reporting. View Article
EFAMA Bringing ESG Ratings and ESG Data Providers within the Regulatory Perimeter : Asset managers highly rely on ESG data and ratings from external providers and this reliance poses several challenges challenges. To address the pivotal issues a regulatory framework for ESG data and ratings is necessary. View Article
EBF comments to the European Commission proposal for a Regulation on ESG ratings : ...we provide the European banking industry’s advice, which aims at enhancing the regulatory framework for ESG ratings as well as ensuring greater cohesiveness and consistency within the broader sustainable finance framework. View Article
EBF response to the International Sustainability Standards Board (ISSB)’s Request for Information Consultation on Agenda Priorities : ..we deem important to ensure that the ISSB Standards can be effectively and consistently implemented and applied by entities, and in a way that is interoperable with other sustainability reporting standards - ESRS- to minimize reporting burdens, costs, complexity and enhance comparability. View Article
ALFI responds to the European Commission’s consultation regarding the proposal for a regulation on the transparency and integrity of ESG ratings : ALFI supports the overarching objective of enhancing the transparency, reliability and comparability of ESG rating and ESG data products, to foster trust and confidence in the operations of ESG rating providers for the investment management industry and for the end-investors. View Article
IPE's Amorim: European Commission at risk of losing leadership role on sustainable finance : Recent developments over the adoption of European Sustainability Reporting Standards (ESRS) reveal a misalignment between the EU and the IFRS Foundation’s visions of what mandatory corporate sustainability disclosures should be about... View Article
Accountancy Europe: The ISSB should develop more sustainability reporting standards and provide support to enact them : It is important for the ISSB to complete its suite of standards to develop the global baseline, as well as provide implementation support to help the standards’ uptake. From a European perspective, these activities are paramount to ensure interoperability with the 12 European Sustainability Reporting Standards (ESRS) and the upcoming guidance. View Article
IFAC Supports ISSB Focus on Implementation of IFRS S1 and S2; Sees opportunity for IASB and ISSB to develop global best practices for “front : Companies need a global baseline for a holistic, narrative analysis of how reporting entities create, preserve, or erode value over time, including how sustainability disclosures are connected to financial position and performance. View Article
The IAIS comment letters to ... the ISSB (Consultation on Agenda Priorities) : IAIS welcomes the opportunity to comment on the ISSB Agenda priorities and the comment letter to the ISSB provides suggestions on areas where the ISSB can prioritise its work. View Article
UNEP FI responds to IFRS Consultation on ISSB agenda priorities : Following its response to the IFRS consultation on the ISSB’s first standards – General Requirements for Disclosure of Sustainability-related Financial Information (S1) and Climate-related Disclosures (S2) in 2022 – UNEP FI has responded to the IFRS consultation regarding the ISSB’s future agenda priorities. View Article
EBF response to the International Sustainability Standards Board (ISSB)’s Request for Information Consultation on Agenda Priorities : ..we deem important to ensure that the ISSB Standards can be effectively and consistently implemented and applied by entities, and in a way that is interoperable with other sustainability reporting standards - ESRS- to minimize reporting burdens, costs, complexity and enhance comparability. View Article
Faster green transition would benefit firms, households and banks, ECB economy-wide climate stress test finds : “We need more decisive policies to ensure a speedier transition towards a net-zero economy in line with the goals of the Paris Agreement...." View Article
Monitoring Group Reports on Progress to Implement Recommendations to Strengthen the International Audit, Assurance, Ethics, and Independence : The objectives of the MG Recommendations are the implementation of an independent and inclusive multi-stakeholder standard-setting system that is responsive to the public interest in the development of timely, high-quality audit, assurance, ethics, and independence standards that respond to an accelerated pace of change. View Article
Protecting Customers
ESMA and the EBA assess the implementation of the revised Shareholder Rights Directive and identify areas for progress : This assessment, carried out in response to a European Commission’s request, identifies areas for further progress and provides detailed suggestions for policy action in relation to the Directive’s effectiveness, difficulties in practical application and the appropriateness of the scope of application. View Article
Fin Tech Regulation
EURACTIV: European Parliament sceptical of Digital Euro : The Economic Affairs Committee of the European Parliament voiced concerns over the digital euro, including costs for banks and unclear benefits for EU citizens, during questions posed to European Central Bank Executive Fabio Panetta. View Article
ECON study: Digital Euro: Reviewing the progress to date and some open questions : In this in-depth analysis, we summarise and explain the directions that the ECB has in mind for the digital euro, based on the ECB’s progress reports and statements. View Article
CFA Institute Global Survey Shows Limited Support for, and Understanding of, Central Bank Digital Currencies : The global survey of CFA Institute members found limited understanding of and support for CBDCs. A plurality of 42 percent of respondents believe that central banks should launch CBDCs, while 34 percent disagreed. Only 13 percent said they had a strong understanding of CBDCs. View Article
ESMA's Ross: “There will be no such thing as a safe crypto-asset” : Consumers need to be aware that MiCA does not provide the same protection as for traditional financial products. View Article
AFME: The EU's Cybersecurity Agenda: Coherent or Chaotic ? The question, however, is whether each of these initiatives are effectively aligning, or whether EU officials are tripping over each other in the rush to get files over the line ahead of next year’s elections? View Article
BETTER FINANCE response to the IOSCO Crypto-Assets Consultation : The exposure of retail investors to crypto-assets has increased globally, leading to greater retail investor losses due to financial crime, fraud, money laundering, and under-regulated activities in the crypto-asset market. View Article
Coindesk: Blanket Crypto Bans Won’t Work, Joint IMF, FSB Paper Warns : The global standard-setters also warned stablecoins adopted by multiple jurisdictions "may transmit volatility more abruptly" than other crypto. View Article
Bruegel: The Digital Markets Act is about enabling rights, not obliging changes in market conditions : Compliance with the DMA will be about ensuring that users are empowered with rights to challenge gatekeepers View Article
Supervisory cooperation in the fight against financial crime is improving, the EBA finds : The Report finds that competent authorities had taken important steps to improve the functioning of AML/CFT colleges. Nevertheless, many colleges had not reached full maturity. View Article
BIS: The financial stability risks of decentralised finance : The turmoil in cryptoasset markets and in DeFi in 2022 exposed a number of vulnerabilities in relation to DeFi, including operational fragilities and liquidity and maturity mismatches, as well as issues relating to leverage and interconnectedness View Article
Brexit and the City
The City UK: Driving jobs and growth across regions and nations: the enabling role of UK financial and related professional services : In the decade to 2021, employment in UK-based financial and related professional services increased by nearly 20% (390,000), with over half those jobs created outside London, according to the latest report from TheCityUK. View Article
Reuters' Jones: City of London calls for 'big moves' to boost post-Brexit finance : It was now time to follow up systematically through a more formalised strategy, with clear timelines and targets to ensure that momentum is maintained, the joint report with consultant group Oliver Wyman said. View Article
FT: Banks and investors step up opposition to EU derivatives plans : Trade bodies call on bloc to scrap initiative to move clearing deals out of London View Article
EIAG's Cooke: UK-EU Regulatory Cooperation in Financial Services : The MoU is very open and non-prescriptive...creates a framework for dialogue...transparency and dialogue will be important for... the maintenance of financial stability and observance of equivalence, suggesting some objectives, and offering a non-exclusive list of potential topics for dialogue. View Article
IPE's Rust: UK taxonomy group advises government to diverge from EU approach : Government advisors have warned the UK not to repeat the mistakes of the European Union on corporate sustainability reporting, by ensuring that companies disclose against its green taxonomy before financial institutions are expected to do so. View Article
Brexit
ElectionmapsUK: Rejoin 48.8%, Stay out 32.7% : The gap in favour of rejoining has grown steadily since opinions were in balance in early 2022 View Article
WhatUKthinks' Curtice: Do Voters Care About Controls on EU Imports? : Not that voters necessarily believe that much use is being made of the regulatory freedom Brexit was supposed to bring. View Article
CER's Spisak: What approach should Labour take to the 2026 TCA review? : A Labour government will want to reshape relations with the EU. The 2026 review of the trade deal offers only limited scope for change – but that should not constrain Labour’s ambitions. View Article
FT: The UK and EU are discovering a post-divorce harmony on regulation : UKandEU's Reland: The post-Brexit relationship has been quietly maturing from petulance to managing divergence View Article
Bloomberg: UK Drops Bid to Replace Europe’s ‘CE’ Quality Mark Post-Brexit : Previous plan was to make firms adopt ‘UKCA’ version from 2025; Climbdown is likely to anger Brexiteers pushing for divergence View Article
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