Welcome to our Friends weekly e-mail.
Highlights of my week: Later today, former Italian PM Letta will present his report on the Single Market to the European Council and reports suggest some radical ideas for the financial markets. Aside from foreign policy, CMU appears to be centre stage at EUCO so perhaps the next Commission/Parliament will finally overcome deep-seated national protectionism. Fortunately, the evidence seems to point to citizens becoming more engaged in the EP June elections which may blunt the impact of far-right groups - perhaps further blunted by their lack of voting cohesion. The EBF published its `manifesto’ of recommendations for the next mandate and `securitisation’ continues to enjoy wide support – this time from German banks but only as a capital management tool for banks, rather than as a competitor to banks! Cyber resilience also featured in FSB and ESRB reports. The FT picked up on the story behind the policy error of EU and UK regulators in forcing the unbundling of investment research – only to find that the classic `unintended consequences’ were exactly what researchers predicted: the volume of research has gone down and market liquidity has been diminished as a result. Public support for Brexit continues to ebb away and a settled 59% now want to `rejoin’ – perhaps the Labour Party will listen to them?
Graham Bishop
Articles from 12-24 April 2024
Policy impacting Finance
Enrico Letta: Report: MUCH MORE THAN A MARKET : Much more than a market – Speed, Security, SolidarityEmpowering the Single Market to deliver a sustainable future and prosperity for all EU Citizens View Article
POLITICO: Time for a European single market ‘with teeth’ to take on China, India, leaders told : Former Italian Prime Minister Enrico Letta tells POLITICO that government subsidies should become a “European tool.” View Article
EURACTIV: Capital Markets Union best route to rival US IRA, Michel says as Letta outlines sweeping financial sector plan : Michel said that further integration of the Capital Markets Union (CMU) would unlock “trillions of euros” in potential investments, thereby rivalling if not surpassing the $369 billion US Inflation Reduction Act (IRA) View Article
EURACTIV: Letta: ESMA should supervise largest market players : The final draft of Letta’s high-level report on the single market, seen by Euractiv, calls for “a strengthened role” of ESMA, first and foremost by centralising the oversight of the most systemic financial market players—along similar lines to what the EU previously enacted for the largest cross-border banks. View Article
Invitation letter by President Charles Michel to the members of the European Council : The Capital Markets Union warrants our special attention and firm guidance. It is imperative that we make significant strides in this area, where progress has lagged for too long. View Article
Remarks by Paschal Donohoe following the Eurogroup meeting of 11 April 2024 : We agreed again on the importance of the Capital Markets Union, and discussed how we can complete the initiatives that are in front of us, and how we can continue to turn the Eurogroup’s statement on Capital Markets issued a few weeks ago into reality in the time ahead. View Article
IMF: World Economic Outlook, April 2024: Steady but Slow: Resilience amid Divergence : The latest World Economic Outlook reports economic activity was surprisingly resilient through the global disinflation of 2022–23, despite significant central bank interest rate hikes to restore price stability. Risks to the global outlook are now broadly balanced compared with last year. View Article
IMF: The Last Mile: Financial Vulnerabilities and Risks : Near-term risks to global financial stability have receded as disinflation is entering its last mile but medium-term vulnerabilities are mounting. View Article
IMF blog Why Our World Needs Fiscal Restraint in Biggest-Ever Election Year : By Dabla-Norris, Gaspar, Poplawski-Ribeiro, Yoo: Governments should stay the course on fiscal consolidation amid mounting debt. View Article
Parliament: Geopolitical situation makes voting in European elections even more important : More than eight in ten Europeans (81%) believe voting is even more important given the current geopolitical situation; Six in ten citizens (60%) take an interest in the upcoming European elections 6-9 June, 11pp more than at the same point in time prior to the previous vote in May 2019... View Article
The European Parliament elections 2024: Getting more jitters from the mainstream than the far-right : By Stratulat/Locsis: Members of radical right-wing groups emerged as the least influential groups during the present mandate (2019-2014). View Article
EPC: Towards a Competitive Edge: Reforming the EU Regulatory Framework : Amidst an increasingly complex economic situation, Europe’s decrease in competitiveness is one of the most dangerous threats to the bloc’s long-term prosperity. View Article
FSB proposes measures to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls during times of : FSB report identifies weaknesses in risk management and governance as key causes of inadequate liquidity preparedness by some non-bank market participants during recent incidents of liquidity stress in financial markets. View Article
IOSCO publishes an updated Workplan : IOSCO’s constant engagement with regulators from all regions and different market types, gives us a unique perspective on the key issues facing investors and financial markets. View Article
BIS's Carstens.Nilekani: Finternet: the financial system for the future : We propose the concept of "Finternet" as a vision for the future financial system: multiple financial ecosystems interconnected with each other – much like the internet. The Finternet would be designed to empower individuals and businesses by placing them at the centre of their financial lives. View Article
ICMA Quarterly Report Second Quarter 2024 : Topics: Lessons from LIBOR transition in the bond market under English law; Transition finance in the debt capital market; Liquidity and resilience in the core European sovereign bond markets; Bond markets to meet EU investment challenges; Sovereign debt proposals well intended but flawed View Article
Bruegel: Ukraine’s potential future accession : By Darvas, Dabrowski, Grabbe, Moffat, Sapir, Zachmann: This report evaluates the impact on the EU of a possible EU accession of Ukraine, focusing on economic consequences and institutional developments. View Article
Banking Union
Financing Europe’s Competitiveness: European Banking Federation recommendations for Europe’s incoming powerhouse : The EBF highlights the focus of next five years’ key priorities, including bolstering the EU’s economic potential, promoting transition finance for the EU Green Deal, fostering a secure digital transformation, and completing the Single Market for financial services. View Article
EBA publishes annual assessment of banks’ internal approaches for the calculation of capital requirements : These exercises aim at monitoring the consistency of risk weighted assets (RWAs) across all EU institutions authorised to use internal approaches for the calculation of capital requirements. View Article
SRB takes part in regular coordination exercise on cross-border resolution planning, organised with US, Banking Union and UK financial authorities : The meeting, hosted by the Federal Deposit Insurance Corporation (FDIC), is part of a series of regular exercises and exchanges among the principals of these key financial sector authorities. View Article
EBA, EIOPA and ECB set up a joint governance framework for the collaboration on the DPM 2.0 standard : Together with the establishment of a Joint Bank reporting Committee (JBRC) between the EBA and ECB, this alliance is another step in the process of building an integrated reporting system. View Article
Capital Markets Union
BETTER FINANCE: A Requiem for the Capital Markets Union | Breathing New Life into the “Savings and Investments Union”: Drawing input from individual investors and professionals across Europe, the focus remains on ensuring better outcomes for consumers and fostering confidence in the financial ecosystem, while prioritising the real economy to the benefit of European citizens and enterprises. View Article
Bankenverband's Quade: Looking to the future – optimising the production line for securitisations : This volume of funds can only be financed through an intelligent combination of available capital sources: businesses’ own funds, bank loans, capital market and public funding. In particular, more private capital must flow into the economy via the capital market. View Article
EIOPA study explores impact of new accounting standard in insurance after first year of IFRS 17’s implementation : EIOPA published a report analyzing how insurance undertakings in the EU implemented the new insurance accounting standard IFRS 17 as well as the synergies and differences in the calculation of insurance liabilities with the Solvency II framework. View Article
ISDA, AIMA, GFXD Publish Paper on Transition to UPI : AIMA and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association published a paper on the transition to unique product identifiers (UPI) as the basis for over-the-counter (OTC) derivatives identification across the MIFIR regimes. View Article
ESMA: New report sheds light on quality and use of regulatory data across EU : The report provides details on how National Competent Authorities (NCA’s), the European Central Bank (ECB), the European Systemic Risk Board (ESRB) and ESMA use the data that is collected through the year from different legislation requirements... View Article
ISDA: US Capital for Clearing Must be Risk Appropriate : Our analysis of the US capital proposals paints a very clear picture – the rules would dramatically increase capital requirements for derivatives, which will impact the ability of US banks to provide intermediary and risk management services. View Article
Environmental, Social, Governance (ESG)
ESBG: European Banking Authority (EBA) on ESG risk management : Proportionality is also key as ESBG believes that the specific situation of the financial institutions, such as size, complexity, and risk content, should be the key factor. Flexibility within the framework should also be allowed, notably regarding data processing. View Article
Strengthened collaboration between GRI and TNFD : Responding to feedback from both TNFD Forum member organisations and GRI Community members (as well as other organisations using or considering GRI standards and disclosures aligned to the TNFD Recommendations), the TNFD and GRI plan for further implementation and capability building support. View Article
Irish Funds Report: Review of SFDR Level 2 Disclosures : The paper outlines expectations leading up to the Level 2 implementation and context to SFDR Level 2 disclosure requirements. SFDR requires financial market participants, financial advisors, and financial products to provide relevant and accurate data... View Article
Fin Tech Regulation
FSB Europe Group discusses risks from commercial real estate and implementation of the crypto-asset regulatory framework : They also exchanged views on preparations for new crypto-asset regulations entering into force, such as the Regulation on Markets in Crypto-assets (MiCA) in the European Union and the proposed regulatory regime for crypto-assets in the United Kingdom. View Article
SUERF's Assenmacher/Smets: A digital euro: Monetary policy considerations : ..for realistic take-up scenarios and appropriate design features, demand for a digital euro would not have any significant impact on the monetary policy stance and its smooth transmission. Moreover, the risk that a cash-like CBDC undermines the profitability of the banking sector seems limited. View Article
CEPR: Managing the transition to central bank digital currency : Using a two-country model with financial frictions and under plausible assumptions for demand for central bank digital currency, the transition has volatility in the digital currency, cash, and deposits, leading to volatility in loan rates, investment, and consumption. View Article
ESAs to run voluntary dry run exercise to prepare industry for the next stage of DORA implementation : The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) today announced that they will launch in May the voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by the financial entities. View Article
ESRB publishes report on operational policy tools for cyber resilience : Tools for gathering, sharing and managing information; Coordination tools; Emergency and backup systems View Article
Brexit and the City
Finextra: Blair Institute sets out 'progressive vision' for fintech : Labour has already promised an open finance roadmap, while just this week the government set up its own task force. The Blair report calls for an Open Finance framework within 100 days of taking office. View Article
ALFI response to the UK FCA public consultation on paper CP23/26 ”Implementing the Overseas Funds Regime” : ALFI responded to the UK Financial Conduct Authority (FCA) public consultation on the on paper CP23/26 ”Implementing the Overseas Funds Regime”. View Article
EFAMA & EFSA joint letter on FCA wholesale market data study : It finds evidence of unequal market power in terms of market concentration, highly profitable margins, opaque pricing practices, excessive charging, bundling practices and complex licensing agreements, all of which negatively impact data users. View Article
FT Alphaville: Sorry, rebundling research isn’t going to work : Regulators are now repenting at leisure. The EU last year started consultations to dismantle these rules. And now the UK is undertaking its own volte-face, following the Investment Research Review’s recommendation to give investors more flexibility in how to pay for research. View Article
Brexit
BCC: UK Trade Ticks Up As Global Demand Recovers : Further measures are required by policymakers to nurture the green shoots we are seeing. The UK needs to ensure the Exports Strategy is delivering where it needs to, particularly around digital trade and across a wider range of UK economic sectors. View Article
What UK thinks : Post-Brexit Poll of Polls : Rejoin 59%; stay out 41% View Article
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