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03 March 2015

'Deepening EMU' - Round-up of Key Events - February 2015

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Highlights from the 107th Brussels for Breakfast. The Eurogroup gives Greece some breathing space. The European Commission published its Winter Economic Forecast. Europe's big banks need to raise capital. Green Paper on Capital Markets Union was launched and several bodies responded.

The 107th Brussels for Breakfast covered Grexit, Brexit, Capital Markets Union and the Basel Committee’s (BCBS) work programme for 2015 and 2016.


The Eurogroup gave Greece some breathing space after several meetings and Graham Bishop commented that the good news appears to continue. However, he said the right analogy of the situation is a game of chicken between a Fiat 500 and a 50-ton `main battle tank’ - the relative weights are roughly comparable to the economic weights.

Other political news of the month included the French government overriding parliament to ram through reforms.  On Brexit, a new survey from Ipsos MORI showed that 45% of British business leaders want to return to being part of an economic community, without political links, but just 1% would be happy to leave the EU.


The European Commission’s Winter Economic Forecast showed, for the first time since 2007, the economies of all European Union Member States should grow again this year.

Mario Draghi told the European Parliament that a deeper Monetary Union is needed to face important shocks: "Economic convergence has not been as sustainable as it was hoped for at the outset." The ECB also launched its Occasional Paper Series covering the Four President’s Report and what could be envisaged in terms of future steps of integration.


The FSB Chair wrote to G20 Finance Ministers and Central Bank Governors about “finishing the post-crisis agenda and moving forward”. Nonetheless, a House of Lords report concluded that the EU financial regulatory framework has been radically transformed in the wake of the financial crisis. But Reuters reported that Governments are losing interest in financial reform.

Commissioner Hill is sticking by the bank trading reform. Reuters informed that “there are no plans to scrap a draft European Union law on reining in trading risks at big banks but some of the proposed rules could be softened.” Daniele Nouy of the ECB warned in an interview with the Financial Times that Europe’s big banks will need to raise capital, as a result of her new agency’s drive to harmonise more than 150 national variances in capital rules

Relevant documents published in February include EBF’s response to consultation on draft RTS on contractual recognition of bail-in; the BCBS’ Guidance on accounting for expected credit losses; the EBA’s advice on the definition of eligible capital; EBF’s response to the FSB’s consultative document on Total Loss Absorbing Capacity and EBF’s response to EBA consultation on draft guidelines on product oversight and governance arrangements for retail banking products.

A Bank of England review pointed to shrinking liquidity as the top concern for financial markets. After publishing its review on wholesale markets, the UK’s FCA decided to investigate competition in investment and corporate banking services.


The European Commission launched its much-trailed Green Paper on Capital Markets Union. The outcome of the three-month consultation round will shape an Action Plan to help unlock non-bank funding so that start-ups can thrive and larger companies can expand further.  

Several bodies responded to the paper. The FRC and IASB support the goal of the proposed Capital Markets Union. AFME commented: "Capital markets union is an essential reform project to revive the EU economy, and the financial industry can and will make an important contribution."

EBF and Insurance Europe also agree that Capital Markets Union must unlock the latent potential of EU financial markets. According to EFAMA, the European Commission’s Green Paper highlights the clear need for a Capital Markets Union which is primarily focused on investors.

The Investment Association also responded saying that wholesale markets already have measures for efficiency and risk reduction. “But the potential benefits of a deep, retail CMU are enormous, in terms of a virtuous cycle of investment driving growth, leading to better financial security for citizens and a vibrant economy,” the association stated.

On a similar note, ACCA shared the view that to create a supportive environment - especially for small businesses - it is crucial to both remove cross-border investment obstacles and to lower the cost of capital in order to have it flowing again and put to productive use.

Prominent think-tanks also expressed their views on the paper. Brookings gave its initial impressions and indicated that “the core idea is to build up the role of financial markets in Europe and to diversify away from a financial system that remains very bank-centric.”

Nevertheless, CEPS noted in its paper Which union for capital markets? put the link to the title that “despite years of harmonising regulation and a single currency, Europe’s capital markets remain fragmented.”

The Commission also launched consultations on securitisation and a review of the Prospectus Directive.

On the subject, AFME published a report arguing that further reform of post trade regulations is necessary to achieve integrated and efficient European capital markets.

In relation to the Prospectus Directive, the OECD published a report warning over “aggressive interpretation” of bond covenants, and trade bodies launched a guide on best practices for the EU corporate private placement market.

Other news on securities included the EU Council’s announcement it will back the European Commission proposal to fight against the manipulation of financial benchmarks. Reuters reported that the United Kingdom will apply EU rules on dealing with payments by fund managers for investment research from brokers.

Reuters said  the ECJ will rule on March 4 on the UK’s challenge to ECB’s demand that UK clearing houses locate euro activity in the euro area if  more than 5 percent of turnover is in euro.  "If they are going for an early judgment then I can't see how the UK has a leg to stand on," Graham Bishop told Reuters.

Traders Magazine published an article on what's causing the delays in new OTC derivatives rules. “The 18-month stalemate is raising costs and risk for buyside firms and increasing concentration levels among remaining CCPs,” the article reads.

ESMA’s revised 2015 Work Programme was also released in February. The organisation will lack sufficient resources to execute all the tasks that were initially planned for 2015.

Asset Management

The European Commission recommended that pension funds should benefit from a further two-year exemption from central clearing requirements. PensionsEurope welcomed this news.

PensionsEurope also commented  on EIOPA’s plans for further work on solvency of IORPs, whilst the Investment Association discussed  the comprehensive disclosure of costs and charges.


Insurance Europe responded to the IAIS consultation on a risk-based global Insurance Capital Standard. Commercial Risk Europe assured that Solvency II is at risk due to budget cuts at EIOPA - which explained the implications of the cuts for 2015.

Corporate governance and accounting

The IPSASB released IPSASs on Accounting for Interests in Other Entities, and  FEE commented on the IESBA consultation Improving the Structure of the Code of Ethics for Professional Accountants.

The OECD published Corporate governance, value creation and growth - providing a comprehensive global overview of all corporate bond issues since 2000 and experiences of governance engagement by bondholders.


© Graham Bishop

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