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My highlights of the week: `ESG’: Bloomberg spotlights “socially conscious” investing in companies controlled by a state accused of barbaric war crimes – shutting Russia out of mainstream investing for a generation? EBA reports limited direct impact on EU banks from Russia, but Botin calls for a `green lending’ definition to cut dependence on Russian fuel. The Commission and ECB discuss EU financial integration. Both ECOFIN and McGuiness underline the necessity of action to cut over-reliance on UK CCPs. The new ISSB proposed comprehensive sustainability disclosures. The Commission consults on the legal aspects of making digital euro the single currency – should it be required – even as the ECB does not rush to introduce a retail CBDC. The UK now plans to become a global hub for cryptoassets… just as the rest of the world realises the AML/CFT risks?
Graham Bishop
(This e-mail provides the headers of a selection of the articles published this week. If you would like to upgrade to our Gold service and access all articles - with live links to the underlying news - please click on the button)
Articles from 1-7 April 2022
General Financial Policy
Economic and Financial Affairs Council, 5 April 2022 : Dombrovskis "...the implementation of the OECD agreement concerning the Pillar 2 of global taxation: We regret that agreement was not possible ... commend the French Presidency's outstanding work and commitment to make sure that there is consensus and agreement on this important file.
Commissioner McGuinness at the ECB/European Commission Conference on European financial integration, 'An EU financial syst : ..one of the main ways we can [build a financial syetem] is by deepening the Capital Markets Union, which also means building up key financial infrastructures within the European Union, in particular our central counterparties.
ECB's de Guindos: An EU financial system for the future : "...progress achieved on financial integration since the start of Economic and Monetary Union (EMU) has helped to increase the resilience of the EU financial sector ... a further deepening of EMU can help tackle the current and future challenges that come our way."
Pandemic did not impair financial integration in the euro area, ECB report shows : Combined fiscal and monetary response kept financial fragmentation in check during pandemic; Resilient financial integration vital for euro area economy and financial sector; EU equity markets need further promotion to finance green and digital transformations
LSE: Russia’s invasion of Ukraine: A turning point for European integration? : The war in Ukraine has helped foster solidarity between EU states, who have united to impose sanctions on Russia. Uwe Wunderlich assesses what this new spirit of cooperation might mean for the future of the integration project.
Banking Union
EBA Risk Dashboard indicates limited direct impact on EU banks from the Russian invasion of Ukraine but also points to clear medium-term ris : - First-round risks stemming from the Russian invasion of Ukraine are not a fundamental threat to the stability of the EU banking system, but second-round effects may be more material- EU bank capital and liquidity ratios remained strong
SSM's Andrea: Hearing at the European Parliament’s Economic and Monetary Affairs Committee : The ECB is closely monitoring the impacts of current developments on the banking sector.
FSB welcomes smooth transition from LIBOR : The end of 2021 marked a major milestone in the transition away from LIBOR and the FSB welcomes the smooth transition to robust alternative rates across global markets, primarily overnight risk-free or nearly risk-free rates (RFRs).
Capital Markets Union
European Commission adopts additional equivalence decisions for US exchanges : As a result, derivatives traded on these US exchanges will now be treated as exchange-traded derivatives under EU law.
ICMA: ICMA Quarterly Report for the Second Quarter of 2022 : The transition from LIBOR in the bond market; Russia-Ukraine: sanctions effects on markets; CSDR mandatory buy-ins: v 2.0; The GMRA: marking 30 years of ongoing service; Ensuring the usability of the EU Taxonomy; Diversity and inclusion measures at the Banque de France
IOSCO seeks feedback on market liquidity issues affecting corporate bond markets under stress and good practices concerning ETFs. : Feedback will inform IOSCO’s ongoing review of the sector and future consideration on ways to improve market functioning and the resilience of liquidity supply under stress.
ESMA: ESG funds provided better returns for investors in 2020 : A new finding this year is that UCITS with an environmental, socialand governance (ESG) strategy (including equity, bond and mixed funds) outperformed their non-ESG peers, and were also overall cheaper.
Environmental, Social, Governance (ESG)
Bloomberg: ESG Rating Firms Reeling as War Exposes Russian Blind Spot : Regulators calling for rethink of how ESG ratings system works; An estimated 600-plus standards, rankings, frameworks exist
European Commission: Targeted consultation on the functioning of the ESG ratings market in the European Union: ESG ratings generally assess the impact of environmental, social, and governance factors on a company and a company’s impact on the outside world.
EIOPA launches climate stress test for the European occupational pension sector : Sustainability and the management of environmental risks have become key considerations for long-term investors and in particular for European institutions for occupational retirement provision (IORPs).
IFRS: ISSB delivers proposals that create comprehensive global baseline of sustainability disclosures : The International Sustainability Standards Board (ISSB), established at COP26 to develop a comprehensive global baseline of sustainability disclosures for the capital markets, today launched a consultation on its first two proposed standards
IFRS: ISSB communicates plans to build on SASB’s industry-based Standards and leverage SASB’s industry-based approach to standards developme : As the IFRS Foundation Trustees committed when launching the ISSB, it will build on the work of existing investor-focused reporting initiatives to become the global standard-setter for sustainability disclosures for the financial markets.
Reuters: Botin urges EU to define green lending to reduce dependence on Russian energy : The chairman of Spanish bank Santander called for the European Union to define what kind of lending is considered consistent with a net zero energy policy, to help hasten moves to reduce dependence on Russian oil and gas.
CER: The EU emissions trading system after the energy price spike : The economic recovery from the pandemic has led to an energy crunch, and war in Ukraine has contributed to increasing energy prices and complicated the politics of carbon pricing. This policy brief discusses how to make a higher and more comprehensive EU carbon price both effective and politically feasible.
ECGI: Dual Class Shares in the Age of Common Ownership : Dual class shares and the anticompetitive effects of common ownership are two of the most discussed corporate governance issues of our time. In this Article, we identify a hidden connection between them, which allows us to derive policy implications that are relevant for both.
Better Finance: Compensation for Wirecard Investors : Wirecard AG’s bankruptcy is likely one of the biggest economic scandals in German history. Within no time it became clear that the high-tech hopes for online payments were nothing but a colossal fraud scheme.
Fin Tech Regulation
European Commission: Targeted consultation on a digital euro : For a digital euro to be used as the single currency, concurrently with euro banknotes and coins, it would require a Regulation of the co-legislator, upon a proposal by the Commission, on the basis of Article 133 TFUE.
UK Government sets out plan to make UK a global cryptoasset technology hub : Stablecoins to be brought within regulation paving their way for use in the UK as a recognised form of payment.
PYMNTS: ECB, Fed, BoE Work on an Interoperable CBDC : The ECB is not rushing to introduce a retail CBDC in the economy, although it is conducting pilot programs to understand people’s needs.
European Parliament: Crypto assets: new rules to stop illicit flows in the EU : Crypto-assets’ transfers would need to be traced and identified to prevent their use in money laundering, terrorist financing, and other crimes.
Economic Policies Impacting EU Finance
ALFI comments on the proposed Council "Unshell" Tax Directive : Draft Unshell Directive - Fighting the use of shell entities and arrangements for taxpurposes
Brexit and the City
ECOFIN: Council Conclusions on the EU’s economic and financial strategic autonomy : RECALLS against this backdrop the Communication of the Commission of 19 January 20212,whereby the Commission sets out how the EU can reinforce its open strategic autonomy in the macro-economic and financial fields; highlights 3rd country CCPs
IRSG response to HM Government Financial Services Future Regulatory Framework: Proposals for reform : The IRSG are supportive of the proposals set out in the consultation but believe there may be too large a gap between the high-level legislation that sets the overall objectives of UK policy and the specific rules applying to products or markets..
Brexit
UKTPO podcast - Reviewing the UK's first post-Brexit trade deal: UK-Australia : It’s certainly an ambitious Agreement, for one thing it will remove practically all tariff protection for imports of agricultural products – something which the EU would be very unlikely to have countenanced.
UK in a Changing Europe: EU corporate sustainability rules mean new due diligence for UK companies : Although mainly aimed at EU businesses, the directive will also affect UK and other non-EU businesses which either have sufficiently large EU activities, have EU parents or are involved in EU supply chains. The costs involved may be significant.
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