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Highlights of my week: Capital Markets Union (CMU) has suddenly become a very hot topic. The ELEC paper a few weeks ago set out several concrete steps – especially on securitisation. It is gratifying to see that both the ECB and Eurogroup have echoed many of ELEC’s key recommendations. But there is a note of hypocrisy from many Eurogroup members calling on the Commission to propose actions which have already been done before while knowing they personally will frustrate the resulting proposals. ECOFIN authorised the Commission to open negotiations with Switzerland that will include “dynamic alignment with EU rules while the City of London celebrated the “Berne Financial Services Agreement” as it moves towards ratification – another UK trade agreement of great fanfare but probably little substance. Key speakers from the SSM and SRB emphasised the resilience of EU banks but stressed that risks remain – especially in the resolution of trading books. Is there a backlash against ESG? The Delors Centre survey found the risk to be overblown and SUERF/Bank of Finland found that 60% of retail investor respondents consider ESG factors. The EU’s AI Act was approved but there are quite some doubts about its efficacy. The EBA published technical, standards for complaints handling for issuers of “asset referenced tokens”. In Brexit-land, immigration may actually have bailed out Chancellor Hunt while CER observed that the UK’s fabled trade deals provide only marginal benefits – as the Tory party gets closer to its moment of reckoning about the “benefits” of Brexit with voters.
Graham Bishop
Articles from 8-14 March 2024
Policy impacting Finance
Statement of the Eurogroup in inclusive format on the future of Capital Markets Union : Open, well-functioning, and integrated European capital markets are crucial to promote the single market and to attract the necessary investments, and thereby to boost the EU’s global competitiveness, innovation, sustainable growth, and job creation. View Article
Statement by the ECB Governing Council on advancing the Capital Markets Union : Strong reasons to support and enhance the Capital Markets Union: For the Eurosystem, achieving a single market for capital is imperative. Progress on the CMU agenda, which could be rebranded focusing more on its purpose, is key for five reasons... View Article
FT editorial: Time to stop dithering over the EU’s capital markets union : After years of under-investment, the EU is recognising the enormous new capital resources needed to achieve a decarbonised, high-tech society able to protect its security and economic interests...But its leaders still fall short of the political ambition Europe needs. View Article
Economic and Financial Affairs Council, 12 March 2024 : RRF - Commission mid-term evaluation; G20 follow-up; EU budget for 2025; Financial services - review of progress on current files; EU-Switzerland relations - authorise negotiations to modernise and deepen bilateral relations View Article
OECD: Global Debt Report 2024 - Bond Markets in a High-Debt Environment : The Global Debt Report examines sovereign and corporate debt markets, providing insights into current market conditions and associated policy considerations, including possible financial stability risks. View Article
ECIPE: Openness as Strength: The Win-Win in EU-US Digital Services Trade : by Bauer, Pandya, du Roy: A thorough analysis of trade data and trends clearly illustrates that the EU’s engagement with foreign (non-EU) digital services, notably from the US, represents a strategic economic advantage, bolstering Europe’s competitiveness and fostering productivity growth. View Article
ECB announces changes to the operational framework for implementing monetary policy : ECB concludes review that started in December 2022; Framework sets out how Governing Council will steer short-term money market rates in line with its monetary policy decisions as Eurosystem balance sheet normalises View Article
Parliament: The role (and accountability) of the President of the Eurogroup : by HAGELSTAM, LEHOFER, LOI: This briefing paper provides an overview of the role and mandate of the Eurogroup and the role and accountability of its President, including the procedures for his/her appointment. View Article
EU-Switzerland: Council adopts mandate for negotiations on future relationship : Institutional provisions to be included in existing and future agreements with Switzerland related to the internal market, providing for dynamic alignment with the EU acquis, uniform interpretation and application, and dispute resolution View Article
Banking Union
SSM's Buch speech: Bridges to the future: managing bank risk amid uncertainty : "It is almost one year to the day since bank distress in the United States and Switzerland tested the resilience of the banking system. Europe’s banks have weathered those storms quite well – thanks both to their own resilience and to the swift policy response in the countries affected." View Article
SSM's af Jochnik speech: The single supervisor ten years on: experience and way forward : "This resilience has been built over time, and... the active role played by the single supervisor should be recognised. Thus far, European banking supervision is fulfilling the promise on which it was established ten years ago, which is to ensure that banks remain safe and sound." View Article
SRB: Tackling trading book risk in resolution : Banks’ trading activities can carry a substantial part of their total risk and be a channel of contagion in bank crises. A keen understanding of what’s in trading books and of how to wind them down post resolution while staying solvent is key for a healthy and resilient banking sector. View Article
ALFI responds to the ESMA consultation on CSDR Penalty Mechanism : ALFI agrees that the increase of penalty rates is one of the avenues that ESMA has now to explore in order to respond to the fund industry/buy-side concerns (CSDR running costs are outweighing the benefits by far, penalties are often not passed-on to the investment fund because non material). View Article
Capital Markets Union
PCS: More support for securitisation reform from the ECB : The statement places the growth of a securitisation market at the center of its recommendations. Together with consolidated European supervision, the harmonisation of insolvency, accounting and securities laws, the improvement of post-trading regimes... View Article
AFME responds to the adoption of the Eurogroup statement on the future development of the Capital Markets Union : With this statement, Finance Ministers have sent a strong message that action is needed if the EU does not want to fall behind other jurisdictions in developing its capital markets. View Article
EFAMA: Size, age, investment strategy and geography are key determinants of UCITS cost : EFAMA’s latest research shows the average product cost of active and passive equity UCITS available to retail investors fell to 1.04% and 0.27% respectively in 2022. View Article
FESE response to the ESAs consultation on ESAP Level 2 requirements : FESE supports the ESAs in their endeavours of drafting the appropriate Level 2 regulatory technical standards for implementing the ESAP. FESE agrees with most of the proposals included in the consultation paper and suggests improvements to certain technical points. View Article
ICMA publishes briefing note on the ESMA proposals for CSDR penalties : The briefing note is in response to ESMA proposals to increase the penalty rates for settlement fails, as applied under the EU CSDR, from current levels by a factor of many multiples. ESMA also floats the concept of “progressive penalties” that increase each subsequent day of the fail. View Article
Council and Parliament strike a deal to expand the use of digital tools in EU company law : The new rules will make company’s data more easily available, enhance trust and transparency in companies across member states, create more connected public administrations and reduce red tape for companies and other stakeholders in cross-border situations. View Article
Environmental, Social, Governance (ESG)
Delors Centres Redeker/Jansen:Debunking the Backlash - Uncovering European Voters' Climate Preferences : The notion of a broad green backlash is set to dominate this year's European election campaign. Based on new survey data from more than 15.000 respondents in Germany, France and Poland, we show that it is largely overblown. View Article
GRI: Voluntary disclosure policies lead global sustainability agenda : Major growth in sustainability and ESG policies revealed in latest Carrots & Sticks report: The post-SDG era saw a huge growth in voluntary sustainability disclosure policies: mandatory ones constituted 55.2% pre-2015, whereas post-2015 they add up to only 36%. View Article
SUERF's Buchanan/Silvola/Vähämaa: Sustainability and Private Investors : We find that 60 percent of all survey respondents consider environmental, social, and governance (ESG) factors when making their investment decisions. According to our results, women and millennials are more likely to follow sustainable investment strategies than investors on average. View Article
UNEP FI: Net-Zero Banking Alliance Members Vote to Reinforce Guidelines for Climate Target Setting : NZBA member banks vote in favour of adopting updated guidelines; Emissions attributable to banks’ capital markets services included for first time; Overall ambition and key principles of original guidelines maintained View Article
ACCA: Nearly three in four professionals say they experience ‘discriminatory and exclusionary’ workplace behaviour : New research from The Young Foundation, conducted for 12 professional membership/regulatory bodies including ACCA, reveals that while equality, diversity and inclusion initiatives are increasingly commonplace, there is growing scepticism among professionals that these are ‘box-ticking’ exercises View Article
Fin Tech Regulation
Artificial Intelligence Act: MEPs adopt landmark law : Safeguards on general purpose artificial intelligence; Limits on the use of biometric identification systems by law enforcement; Bans on social scoring and AI used to manipulate or exploit user vulnerabilities; Right of consumers to launch complaints and receive meaningful explanations View Article
Bruegel's Martens: The European Union AI Act: premature or precocious regulation? : It is unknown whether the Act will stimulate responsible AI use or smother innovation... The Act is essentially a product safety regulation designed to reduce risks for humans from the use of AI systems. Product safety regulation works for single purpose products; View Article
CEPS's Gurtler: AI is political – let’s use it to really transform society : It re-produces society and its power structures: the ‘who builds it’ gets to decide ‘for what’ and ‘how’. AI impacts our democratic processes, power dynamics, human interactions, and societal structures. This is what people refer to when they say that AI is ‘political’. View Article
Commission: Implementation of DORA: milestone technical regulatory standards just adopted : Following the delegated acts package adopted on 22 February this year, the Commission has adopted today three new regulatory technical standards (RTSs).... View Article
WSBI-ESBG Addresses European Parliament Event on Key Banking Sector Concerns Over a Digital Euro : On 7 March, WSBI-ESBG’s Managing Director, Mr. Peter Simon, participated in a panel on the digital euro jointly hosted by MEP Jonas Fernandez (S&D, ES) and Pablo Zalba Bidegain (Former MEP, Managing Director at Deloitte). View Article
FCA updates position on cryptoasset Exchange Traded Notes for professional investors : The Financial Conduct Authority (FCA) will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cryptoasset-backed Exchange Traded Notes (cETNs). These products would be available for professional investors, View Article
The EBA consults on Guidelines on redemption plans under the Markets in Crypto-Assets Regulation : The European Banking Authority (EBA) today launched a consultation on the Guidelines for the plans to orderly redeem asset-referenced or e-money tokens in the event that the issuer fails to fulfil its obligations under the Markets in Crypto assets Regulation (MiCAR). View Article
The EBA publishes final draft technical standards on complaints handling for issuers of asset referenced tokens : The draft RTS fulfil a mandate conferred on the EBA in the Markets in Crypto-Assets Regulation (MiCAR) and were developed in close cooperation with the European Securities and Markets Authority (ESMA). View Article
Economic Policies Impacting EU Finance
European economic coordination: Prioritise prudent investment and reform EU economies, MEPs say : MEPs adopted a resolution outlining their concerns and priorities for the next cycle of economic coordination between member states. View Article
CEPR's Marchesi/Marcolongo : Financial crises and tax havens : This column shows that tax havens not only facilitate tax evasion and corruption in ‘normal times’, they also harbour funds during economic crises, slowing down recovery. View Article
Brexit and the City
City Corporation and TheCityUK host governments and businesses to discuss landmark UK-Swiss (‘Berne’) Financial Services Agreement : The Berne Financial Services Agreement marks the first broad Mutual Recognition Agreement in financial services between two jurisdictions anywhere in the world. The deal was signed in December and it is moving towards ratification by both countries... View Article
City UK: Key facts about UK-based financial and related professional services 2024 : The industry contributed£243.7bn to UK real gross value added (GVA), representing around £12 in every £100 of economic output...employing over 2.4 million people in 2022 – or almost one in every 13 people in employment – with two thirds of these jobs based outside London.. View Article
Buy and sell side unite on joint AFME/IA proposals for a future UK post-trade transparency model for corporate and sovereign bonds : AFME and IA members have worked closely together over several months to jointly develop a framework that builds upon current FCA proposals and provides an optimal solution for the structure of the revised post-trade transparency regime in the UK. View Article
Brexit
Project Syndicate's Patten: The UK’s Upcoming Election and Its Consequences : The United Kingdom’s general election, which is expected to take place later this year, offers the country a unique opportunity to mitigate some of the damage caused by Brexit. Crucially, the UK must avoid the pitfalls of mindless right-wing populism. View Article
UK&EU's Portes: Has higher immigration saved the Chancellor again? : Jonathan Portes explores the impact of immigration on the UK economy in light of the Budget and the OBR’s analysis: Has higher immigration bailed out Jeremy Hunt, yet again? View Article
Federal Trust's Stevens and Donnelly: VIDEO: Brexit – The American Dimension : Many of those arguing for Brexit in 2016 did so because they favoured a closer alignment between the UK and the US. View Article
CER's Berg: Weighed down by gravity: UK trade policy after Brexit : The post-Brexit vision of 'Global Britain' is slowly replaced by the reality that free trade agreements deliver marginal benefits, particularly for the UK’s service-oriented economy. View Article
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