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Welcome to our Friends weekly e-mail.
Highlights of my week: Political uncertainties are rising rapidly: two projections for the outcome of the EU elections note a swing to the right but – crucially – the three-way grand coalition is still likely to hold a slender majority of the seats. Today’s European Council may see a showdown with Putin’s friend – Orban – but he is still set to preside over the EU’s agenda from 1 July. Is that sensible? The EU economy is stagnating but CEPS’s Pelkmans has presented a vison of a 9% boost to GDP growth in the medium term from an active pursuit of a genuine single market. Could the current crisis be the spark for another leap towards integration? ESMA highlighted some of these geo-political problems as a high risk for market corrections. In the meantime, there is a continued flow of actions directly in financial regulation: Council and Parliament agreed the Listing Package, ECB’s Panetta called for a Common Safe Asset, ESMA stepped up its surveillance of real estate funds due to their liquidity mismatches and the IAIS said that 2024 will be a defining year for the development of the Insurance Capital Standard. EBA asked banks about the classification methodologies for ESG risks but EBF argued that any idea of a “Green Asset Ratio” being comparable to the tightly defined CET1 ratio could be misleading. An election in the UK is now certain within the next twelve months so the collapse of negotiations on free trade deals (e.g. with Canada) should be worrying Brexiteers. But they should be even more worried about the imminent application of full border controls on UK imports and - even more importantly – the finger-printing and photographing of UK electors going on holiday to the EU. Graham Bishop Articles from 26 January - 1 February 2024
Policy impacting Finance ECFR: A sharp right turn: A forecast for the 2024 European Parliament elections : The 2024 European Parliament elections will see a major shift to the right in many countries, with populist radical right parties gaining votes and seats across the EU, and centre-left and green parties losing votes and seats. Anti-European populists are likely to top the polls in 9 member states View Article
EU election flash poll: Conservative ECR on course to snatch liberal Renew’s fourth place : The national-conservative ECR group may overtake the liberal Renew Europe group as the fourth-largest political force in the European Parliament if the liberals’ downward trend persists, according to Europe Elects’ latest projection for Euractiv. View Article
EURACTIV: EU election is a battle of placeholders : While von der Leyen promised to revamp the system and ensure that the lead candidate process would be filled with life again, it is now more dead than ever before, with mere placeholders taking the lead candidate positions of their respective European parties. View Article
Der Spiegel: Over a million at protests - Can the German people stop the-AFD's far right rise? : As darkness falls, demonstrators hold their mobile phones up in the air with the flashlights on – this has already become an iconic symbol of this wave of protests. It guarantees good images, and the symbolism is catchy: The light is still shining in Germany, there is hope in the darkness. View ArticleLSE's Hoffman: What kind of “EUrope” do Europeans want? : Brexit and Russia’s invasion of Ukraine have raised important questions about the future of European integration. But what do people across Europe want? Drawing on a new study, Lukas B. Hoffmann and Andreas C. Goldberg examine the views of citizens in five EU and three non-EU countries. View Article
BETTER FINANCE unveils Manifesto for EU Elections 2024, Prioritising Fairer Outcomes for Consumer, Sustainability, and Prosperity for Europe : Entitled "Sustainable Value for Money: Reconciling Individuals, Enterprises & Planet,"the manifesto calls for a renewed emphasis on better outcomes for consumers, long-term investment, and improved corporate governance to restore confidence in the financial system. View Article
FERMA calls upon Belgian Presidency to amplify risk management in efforts to strengthen competitiveness and bolster preparedness : FERMA has looked to the Belgian Presidency of the Council of the European Union to deliver on its agenda priority of enhancing competitiveness, while positioning efforts to transition to a greener economy, enhance overall crisis preparedness, and bolster cyber resilience at the forefront of its activities. View Article
Delors Centre: What does it cost? Financial implications of the next enlargement : Despite a broad consensus on the necessity of enlargement, it is far from a done deal. Especially the financial implications a Ukraine accession pose uncertainties. Lindner, Nguyen and Hansum show the next enlargement round would have less of an impact on the EU budget than is generally assumed. View Article
Project Syndicate's Buti and Corsetti: Lessons from the Euro’s First 25 Years : Prior to the introduction of the European single currency in January 1999, its architects foresaw a future of macroeconomic stability and accelerated growth. While the euro has delivered on some of these promises, it has failed to facilitate the continent’s economic and political integration. View Article
CEPS' Pelkmans: Empowering the single market - A 10-point plan to revive and deepen it : If empowered with a medium-term programme, led by the European Council and actively implemented by the Commission and the European Parliament, it could boost the EU economy by some 9 % of EU GDP, and possibly more .... View Article
Bruegel's Demertzis: Accelerating strategic investment in the European Union beyond 2026 : A potential long-term EU approach to the financing of strategic objectives. View Article
EIOPA: Consumer Trends Report 2023 : Issues related to poor value of ancillary products, high commissions and aggressive sales techniques despite some improvements View Article
Banking Union Commissioner McGuinness at the beginning of the joint public hearings on the selection of the seat of the AML Authority : It is the first time that Parliament and Council are taking a joint decision on selecting the seat of an agency. View Article
Capital Markets Union Listings on European stock exchanges: Council and Parliament agree on new act : The agreement found on the Listing Package will reduce the administrative burden for companies and contribute to making EU capital markets more attractive fully in line with the objectives of the capital markets union. View Article
Bloomberg: ECB’s Panetta Sees Common Safe Asset as Crucial for Europe : “A scarce supply of safe euro-denominated assets is perhaps the single most important constraint on the Capital Markets Union, and hence on the global reach of the euro,” the Italian central bank chief said Friday in a speech in Riga, Latvia. View Article
IOSCO seeks feedback on Post Trade Risk Reduction Services : The Consultation Report notes that PTRRS offer important benefits, including post-trade operational efficiencies, reduction in counterparty risk and, potentially, an overall reduction in systemic risk. View Article
ESMA steps up its monitoring of EU alternative investment funds and sees potential risks in funds exposed to leverage and liquidity mismatch : Existing liquidity mismatches in AIFs are particularly heightened by the high share of open-ended RE funds, some of which offer daily liquidity. This vulnerability could be systemically relevant in jurisdictions where RE funds own a large share of the RE market. View Article
ESMA: Remarkable resilience of financial markets in a higher-for-longer interest-rate environment : ..markets are set to remain very sensitive and risks of market corrections continue to be high, given geopolitical and macro-financial uncertainty. In this context, maintaining trust in financial markets is of particular concern to ESMA, and key to achieving our mission to protect investors. View Article
PCS response to the PRA consultation on the output floor : Although welcoming the PRA’s suggestions, PCS felt bound to point out that all the obvious difficulties that flow from a rigid application of the proposed Basel rules to securitisations – and especially SRT securitisations – flow from the original miscalibration of the capital requirements. View Article
BETTER Finance: Individual Investors’ Key Priorities 2024-2029 | Sustainable Value for Money: Reconciling Individuals, Enterprises & the Planet - Let’s harness the Capital Markets Union’s (CMU) potential to benefit our citizens as financial consumers, retail investors and pension savers, as well as our planet, the economy, and for future generations. View Article
ESBG/many associations' letter on Best Execution reports under RTS 28 : In the spirit of burden reduction and given the limited benefit of RTS 28 reports on investor protection, we ask ESMA and NCAs to address this timing gap issue by publishing a statement, clarifying that NCAs do not prioritise supervisory actions for firms not producing RTS 28 going forward. View Article
IAIS Roadmap outlines key deliverables for 2024 : 2024 will be a defining year for the global Insurance Capital Standard (ICS), with adoption as a prescribed capital requirement (PCR) for Internationally Active Insurance Groups (IAIGs) in December. View Article
FESE ANNUAL STATISTICAL REPORT 2023 : ETFs volumes normalised to pre-pandemic levels, but the listed investment funds market continued its downtrend. Beyond equities, trading in exchange-traded derivatives stabilised and fixed-income trading on exchanges, including ESG bonds, resurged. View Article
Environmental, Social, Governance (ESG) Platform on Sustainable Finance report on a compendium of market practices : The EU sustainable finance framework is being picked up by different market actors as an effective toolkit to navigate the transition to net zero. View Article
The EBA seeks inputs from credit institutions on the classification methodologies for exposures to ESG risks : The objective of the survey is to collect qualitative information on credit institutions’ current practices to inform the EBA’s work on the feasibility of introducing a standardised methodology to identify and qualify exposures to ESG risks. View Article
EBF: Green Asset Ratio cannot be to sustainability what CET1 is to capital : The Green Asset Ratio (GAR) is in principle a simple ratio quantifying EU Taxonomy-aligned assets as a percentage of total covered assets. However due to its structure and constrained coverage it has a very limited information value. View Article
AccountancyEurope: Carbon Border Adjustment Mechanism (CBAM) - Combatting carbon leakage in the EU : The Regulation is complex and will heavily impact many businesses, importers, manufacturers, including SMEs. Accountants should be aware of the impacts on their clients and advise them in the CBAM planning and declarations. View Article
ECON -- SFDR: Draft delegated act (RTS) amending the Delegated Regulation (EU) 2022/1288 : The ESAs asked to prolong the initial deadline of April 2023 by six months and published the final draft on RTS in December 2023. The Commission now has three months to decide whether to endorse the draft RTS as proposed, or to adopt it with modifications. View Article
Fin Tech Regulation SUERF: Private Bank Money vs Central Bank Money: A Historical Lesson for CBDC Introduction : Grodecka-Messi & Zhang (Sveriges Riksbank): We use the opening of the Bank of Canada in 1935 as a natural experiment to provide evidence that banks mostly affected by the currency competition experienced lower profitability but did not decrease their lending compared to unaffected peers. View Article
ESMA consults on reverse solicitation and classification of crypto assets as financial instruments under MiCA : The proposed guidance confirms ESMA’s previous message that the provision of crypto-asset services by a third-country firm is limited under MiCA to cases where the client is the exclusive initiator of the service. View Article
Brexit and the City City AM: The surprise fall that shows just how much trouble the London Stock Exchange is in : Analysis of data by investment platform XTB also revealed that the number of firms listed on the London Stock Exchange has fallen by more than 25 per cent over the last decade, with the pace accelerating in 2023. View Article
Rachel Reeves and Sadiq Khan tell City A.M. readers: ‘When you succeed, we all succeed’ : Rachel Reeves, the Shadow Chancellor, and Sadiq Khan, the Mayor of London, tell City A.M. readers that financial services needs a government on the side of innovation – not in the way View Article
IoD welcomes targeted changes to the UK Corporate Governance Code : The most important addition to the Code is Provision 29. It states that the board should monitor and report on the company’s risk management and internal control framework and, at least annually, carry out a review of its effectiveness. View Article
Brexit BCC: Trade with Canada – What Happens Next? : Negotiations with Canada on a new free trade deal break down - what does this mean for businesses trading with the country and what happens next? The impact does not stop at cheese...end-March, UK businesses lose the ability to cumulate EU content in goods they make and sell to Canadian customers. View Article
Bloomberg: Sunak’s Aim for ‘Global Britain’ Trade Deals Fading After Brexit : Four years after Brexit, government struggling to sign FTAs; New border rules taking effect Wednesday add to EU friction View Article
IFG's Rutter: Brexit border risks loom for government during an election year : The Brexit anniversary may not bring much to celebrate for Rishi Sunak. New paperwork requirements may also lead to supply disruption and shortages if some EU suppliers decide it is not worth making the necessary adjustments – and risking delays – to bring goods over the Channel. View Article
CER's Springford: Brexit, four years on: Answers to two trade paradoxes : A ‘doppelgänger’-type analysis of UK goods trade shows a significant shortfall against a statistically-derived economy that closely tracked UK goods trade to January 2021, when the country left the single market and customs union. ..UK goods exports are 13 per cent lower as a result of Brexit View Article
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