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Highlights of my week/shock of the week was the strength of far-right Dutch leader Wilders election success. However, it is far from clear whether he will actually get into government but the calculus about the European elections next June has just become more fraught. The ECB’s Financial Stability Review was sobering – especially the risk of margin calls on bond funds – the trigger for the “LDI” crisis in the UK gilt market last year. The crypto world experienced more shocks as the worlds’ biggest crypto exchange was found guilty of multiple rule breaches in the US – on AML as well as basic financial regulations. Another major crypto platform – Kraken – was accused by the SEC of major regulatory breaches. Hardly the stuff that should encourage first-world society to leap into CBDCs even if the provenance is solid. “AI” also provided its share of shocks rather than much-hyped opportunities but European think tanks launched a volley of reports – noting that the EU is most advanced in proposed regulation to keep AI safe. The UK is beginning to organise its legislature to oversee its new, post-EU financial regulation and thoughts are turning to how to co-operate with the EU in mini-deals rather than positively `diverging’ to prove that the current executive has “taken back control”. Voters remain very unimpressed: 59% would vote to rejoin versus 41% to remain out.
Graham Bishop
Articles from 17-23 November, 2023
Policy impacting Finance
POLITICO: Far-right leader Geert Wilders wins Dutch election, early results show : Wilders wants to ban mosques and leave the EU. ‘Voters are fed up'. With almost all votes counted, his Freedom Party (PVV) is set to win around 37 of the 150 seats in parliament — more than double the number it secured in the 2021 election, according to exit polls. View Article
Financial stability outlook remains fragile as macro-financial conditions weaken, ECB finds : Financial markets remain exposed to adverse macro-financial and geopolitical developments, potentially amplified by vulnerabilities in some non-bank financial institutions View Article
Reuters: Euro zone's shadow banks face risk of margin calls, ECB says : Euro zone shadow banks face the risk of receiving large margin calls or client redemptions they cannot meet because they do not have enough cash on hand, the European Central Bank (ECB) said. View Article
Bruegel's Zettlemeyer: Are the emerging EU fiscal rules green enough? : While there are developments towards a political agreement on EU fiscal rules reform, three concerns remain. View Article
BIS: OTC derivatives statistics at end-June 2023 : Outstanding interest rate and FX derivatives (notional amounts) increased by 17% and 12% during the first half of 2023 to reach $574 trillion and $120 trillion, respectively View Article
Banking Union
The EBA publishes final standards for Supervisors assessing new market risk internal models : These RTS are part of the phase 4 deliverables of the EBA roadmap on market risk and counterparty credit risk approaches. Today’s final draft RTS represent a significant milestone in the implementation of the FRTB internal models in the EU. View Article
SRB's Laboureix speech: European Banking and Supervision : Most banks are making good progress towards full resolvability... For instance, we expect the vast majority of banks to reach their final MREL target in the coming months. .. Single Resolution Fund is on track to reach 1% of covered deposits – marking the end of the SRF build-up phase. View Article
finextra: Binance pays $4.3bn and CEO pleads guilty to settle US AML charges : “Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in US history,” says Attorney General Merrick Garland. View Article
EURACTIV: To host AMLA, Rome needs to do more than just tackling financial crime : Italy has a strong case to be awarded the European Anti-Money Laundering Authority (AMLA), but it will have to do more than tackle financial crime to convince its European peers, writes Maria Nizzero. View Article
SUERF: Banks’ credit forecasts excel at rank ordering but miss the evolution of losses : Consistent with the use of through-the-cycle risk estimates for regulatory purposes, EL rates rarely evolve in line with AL rates, which helps explain a large precautionary element in Basel III capital requirements. View Article
EPIF welcomes the agreement reached between the European Parliament and the Council of the European Union on the Regulation on instant credi : EPIF is particularly excited to see agreement that will grant the possibility of direct access of payment and e-money institutions (PIs/EMIs) to settlement and payments systems through an amendment to the Settlement Finality Directive (SFD). View Article
ESBG's letter on the draft STE package for the SREP 2024 data collection : The letter asks to postpone the first remittance dates for at least the IRRBB and Market Risk templates starting with Q2 instead of Q1 2024 and for Digitalisation data by 6 months, as well as to narrow the scope and the volume of the required data. View Article
Capital Markets Union
PCS: Lagarde calls for a strong securitisation market .. : ..as an essential component of a historically necessary change to Europe's finance architecture. "A genuine CMU would mean building a sufficiently large securitisation market, allowing banks to transfer some risk to investors, release capital and unlock additional lending." View Article
EIOPA Chair Hielkema at the EIOPA Conference: Hidden risks and new horizons: What’s next for supervision? : In her remarks, Ms Hielkema talked about the future challenges of supervision, about the existing protection gaps and the importance of data in narrowing these gaps. View Article
IPE's Rust: EIOPA chair pushes for action on pension dashboard, auto-enrolment, PEPP : The chair of the European pensions supervisory authority has called for “bravery” to make a pensions dashboard at European level a reality. View Article
ICMA publishes considerations for risk factors and disclosure in DLT bond documentation : To promote transparency in light of the increasing frequency of tokenised securities issuance, ICMA’s DLT Bonds Legal Subgroup analysed the offering documents of DLT-based debt securities across a sample of jurisdictions globally. View Article
Environmental, Social, Governance (ESG)
The EBA publishes final templates to collect climate-related data from EU banks : Collecting counterparty level data will allow to assess concentration risk of large climate exposures, as well as to capture amplification mechanisms and assess second round effects. Aggregated data will inform on the climate-related risks of the banking sector more broadly. View Article
AFME report highlights room for improvement in EU sustainable finance regulation : The paper highlights AFME’s constructive recommendations for policymakers, including how policymakers and regulators can further enable financial institutions in providing financing in support of climate, environmental and social goals and provide a regulatory framework that helps to achieve this. View Article
BETTER FINANCE - Joint Letter: Call for an ambitious EU ESG ratings Regulation : ... mandate ESG ratings to follow a double materiality approach, therefore taking into consideration companies’ exposure to ESG risks, but also and most importantly their ESG impacts on the outside world being a significant part - at least 50% - of the metrics. View Article
GRI: Setting the standard for transparency on climate change impacts : Consultation underway for GRI Climate Change and Energy Standards: On the eve of the UN COP28 climate change summit, GRI has published draft versions of two standards that will be central to how organizations around the world commit to greater accountability for their climate change impacts. View Article
Fin Tech Regulation
CEPR: The global AI regulation race: Why the EU should focus on data quality and liability rules : This column argues that it is the EU that is most advanced in adopting comprehensive and detailed legislation, with its ambitious AI Act. The proposed Act offers a blueprint for a risk-based approach that seeks to prevent harmful outcomes ex ante. View Article
EPC's Riekeles, von Thun: AI won’t be safe until we rein in Big Tech : The chaos at OpenAI perfectly illustrates why the EU needs to impose strict regulatory responsibilities on big AI model providers, instead of relying on self-regulation and goodwill from companies whose accountability is highly uncertain. View Article
CEPS' Balland, Renda: Forge ahead or fall behind - Why we need a United Europe of Artificial Intelligence : ..when it comes to AI, Europe is not leading the charge. This is a serious problem, since by not having viable European AI solutions, Europe will be forced to accept cultural and ethical embedding from AI developed in other parts of the world. View Article
Borsen-Zeitung interview iwth SSM Board MemberTuominen : The cyber stress test will simulate a severe cyberattack that disrupts business operations. So it gets straight to the crux of the issue from the banks’ point of view. We want to know how banks respond to and recover from a cyberattack and how they resume normal business. View Article
IMF blog: Central Bank Digital Currency Development Enters the Next Phase : Many of the world’s monetary authorities are seeking more guidance on how best to pursue digital forms of central bank money. Central bank digital currencies can improve payment systems as well as financial inclusion—if they are appropriately designed. If not, they could pose risks. View Article
Parliament: What’s next for the digital euro? : This briefing summarises the conclusions of the ECB’s investigation phase and gives an overview of the recent legislative proposals from the Commission. It also discusses the ECB’s legal opinion, highlighting where the ECB has concerns with the legislative proposals. View Article
Joint industry statement calls for removing sovereignty requirements from European Cybersecurity Certification Scheme for Cloud Services (EU : ENISA’s current candidate scheme includes political and legal sovereignty elements, such as the requirement to have the company’s headquarters located in the EU, restrictions on ownership and governance restrictions. View Article
finextra: SEC sues crypto exchange Kraken : The US Securities and Exchange Commission has sued Kraken, accusing the crypto trading platform of operating as an unregistered securities exchange, broker, dealer, and clearing agency. View Article
Brexit and the City
House of Lords: Financial Services Regulation Committee recommended by Liaison Committee : A new framework for financial services regulation has been created followingthe transfer of responsibility for large parts of financial services regulationfrom the European Union back to the UK, consequent on the UK’s departurefrom the EU. View Article
Brexit
EU-UK Forum's Henig: Rethinking UK government management of EU relations : This current government is already pursuing a few mini-deals. If there is a Labour administration by early 2025, one which wants to do many more, they will need to understand that this will not be straightforward, and in particular will require considerable political goodwill. View Article
WhatUK Thinks's Curtice: Sovereignty, Economy, Immigration: Still The Three Pillars of the Brexit Debate? : Brexit emerges as a little less unpopular in the latest poll by Redfield & Wilton for the UK in a Changing Europe. Once those who say Don’t Know are set aside, 59% say they would vote to re-join the EU, while 41% indicate that they would vote to stay out. View Article
BCC Talks Green Transition With Maroš Šefcovic : They met at the EU Commission Headquarters, in Berlaymont, to discuss co-operation on the green transition, carbon border adjustment policies, the state of the UK-EU co-operative relationship and building on the success of the Windsor Framework implementation. View Article
Federal Trust video - Jones, Jones and Donnelly: The UK as seen from Wales : All three participants drew attention to the apparent contradiction between claims of Welsh and Scottish sovereignty on the one hand and the claims of Westminster sovereignty on the other. View Article
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