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12 February 2019

148th Brussels for Breakfast – CPD Notes

Organised by the Centre for the Study of Financial Innovation (CSFI), hosted by Chartered Institute of Securities and Investment (CISI) and with co-presenter Monica Sah (Clifford Chance) and Brian Polk (PWC).

This blog covers the key subjects since our last meeting that I hoped to cover but, as always, we ran out of time to deal with them all. As a Friend, you can watch the 39th `structured’ CPD web-cast with CISI. These Notes may be read to record a further 30 minutes of `structured CPD’, including a dipping into the links to the underlying stories.

Highlights from the “Brussels for Breakfast” meeting

As the UK Parliament agonises over Brexit, a sombre mood descended on the Breakfast as it became ever-more clear that irreversible damage has already been done to the City. ESMA published various notices on dealing with CCPs, CSDs and trade reporting continuity via MoUs with the Bank of England. But the drumbeat of news about yet more billions of euros of trading books moving out of the UK underlined that the profitability of the residual UK operations would come under pressure – inevitably leading to job losses. However, the more immediate hit to the UK may come from the removal from the UK of the foreign exchange revenues flowing from these books. Moreover, the SSM is already the world’s largest bank regulator and the swelling numbers of supervised banks will only re-enforce its role in international fora.

For the future of UK trade with EU, analysis of the newly in-force EU/Japan trade deal makes depressing reading. It underlines the EU’s intention to set the tone of international trade deals – to preserve its values and rules. For financial services, there is a specific article on the “prudential carve out” that maintains the ability of a receiver of financial services to refuse them if the other party’s rules are deemed inadequate.

The European Parliament elections in late May are likely to be a pivotal moment as the new Parliament will meet on July 2nd. If Brexit has been delayed, will the UK be obliged to hold elections so that UK MEPs can influence the choice of the next Commission President etc? Will the extreme `populists’ of left and right be able to combine to thwart business?

At a technical level, the issue of the “fall-back” provisions for LIBOR- related contracts stirred much interest. LIBOR is set to be phased out but exactly when are the contractual fall-back conditions triggered? Are they the same in all contracts? The task of combing through the documents is vast legal work… but the economics may not be so great – IF the hedging still works properly.

Two data sets proved interesting: The SSM published the latest banking capital statistics that underline the strength of EU banks – in aggregate. But the NPLs in some countries remain disturbingly high – with associated worry that an economic slowdown may cause IFRS 9’s “expected losses” to crystallise in a de-stabilising way. One solution to NPLs is to sell them off to `funds’ and these form part of the FSB’s analysis of Non-bank Financial Intermediation. The sector continues to grow rapidly and is now more than global GDP. If the losses are just shuffled off from the illuminated-by-regulation bank sector into the darker parts of the non-bank sectors, are we just storing up different problems?

Finally, MiFID II was meant to be the end of the world but it is turning out better than expected – at least for research. Yes – many analysts have gone but smaller companied are providing more information on themselves as a substitute.


These Notes for the Friends of Graham Bishop will be supplemented by our full Workbook for our CPD clients (link) – in conjunction with the 30-minute CISI webcast. 

© Graham Bishop

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