Welcome to our Friends weekly e-mail.
Highlights of my week: The legislative flow from the European Parliament has now halted but the Council still had to finalise the legislation on the reform of fiscal rules. The ESAs and FSB issued warnings about the risks flowing from high valuations – especially as non-bank financial intermediaries (NBFI) are now much bigger than the banking system. The think tanks are continuing to ruminate on the implications of the Letta report and President Macron’s major Sorbonne speech is also giving food for thought. The EBA is struggling to keep up with technology-driven payment fraudsters and the FSB introduced a new standard for CCP resolution – just a decade and a half after their problems came to the fore in the Great Financial Crash. AFME called for more CMU. Concrete steps to create it may proliferate but PensionsEurope published a sobering paper on the implications of the evolving demographic structure of Europe. Mature pension funds will not be the engine of a boom in equity investment. Rather they will sell their equities and buy bonds to match remaining lifetimes as the funds move to a “DC” model! The wonderful benefits of Brexit continue to materialise: The FCA has published hundreds of pages on new `British’ securitisation while it also grapples with the awkward problem that most funds sold to British retail investors are listed in the EU. This month also marks the start of new, enhanced border checks on high risk/perishable goods entering the UK. Citizens are bracing for long queues at Dover, empty shelves and higher prices!
Graham Bishop
Articles from 26 April - 2 May 2024
Policy impacting Finance
Economic governance review: Council adopts reform of fiscal rules : Today the Council adopted three pieces of legislation that will reform the EU’s economic and fiscal governance framework. View Article
ESAs risk update: risks remain high in the EU financial system : In recent months, financial markets have performed strongly in anticipation of potential interest rate cuts in 2024 in both the EU and the US, despite the significant uncertainty surrounding these. This strong performance entails elevated risks of market corrections linked to unexpected events.? View Article
FSB's Knott: Financial stability risks and the FSB’s work program : ...market valuations remain elevated. The tight spreads and low volatility in corporate bond markets are hard to square with rising defaults and upcoming higher refinancing costs. Similarly, equity valuations appear stretched. View Article
SSM's Buch: Financial integration in Europe: where do we stand after the banking union’s first decade? : In many ways, the banking union has been a clear success. The single European rulebook is in place, and common supervisory standards are directly applied by the ECB across Member States on the largest banks (“significant institutions"). View Article
Bruegel: EU savers need a single-market place to invest : By Christie, McCaffrey,Pinkus: Proposals to leverage the single market to boost retail investment could lead to a product citizens will trust. The EU is sitting on €33.5 trillion in household savings yet much of this money is stuck in banks because households prefer cash over market investments. View Article
CEPR's Acharya/Cetorelli/Tuckman: Transformation of activities and risks between bank and non-bank financial intermediaries : Non-bank financial intermediaries have surpassed banks as the largest global financial intermediaries, yet they remain lightly regulated...the intermediation activities and risks of non-bank financial intermediaries and banks have become intricately intertwined.. View Article
Project Syndicate's Leonard: The Macron Moment : Underlying all the problems that Europe faces in a new age of geopolitical, economic, and climate insecurity is a crisis in leadership. Judging by his recent speech at the Sorbonne, French President Macron could be the politician to supply it, but only if he abandons his standard political playbook View Article
EPC's Maurice: Emmanuel Macron sets high ambitions for the next strategic agenda : In a speech at Sorbonne University in Paris on 25 April, French President Emmanuel Macron called for a more sovereign and more powerful Europe. This was an echo of his first speech on the same theme in the same place seven years ago. View Article
POLITICO: More cash, less screen time: 5 policy takeaways from Macron’s Sorbonne speech : Here’s what you need to know about the French president’s wide-ranging address on Thursday. View Article
CER's Scazzieri: The European Parliament elections: A sharp right turn? : Right-wing forces are set to make sizeable gains in the European Parliament elections. That will tilt the Parliament right on many issues and could give these parties momentum nationally. View Article
Banking Union
SSM's Elderson: Updating the Magna Carta of supervision: review of the Core Principles for Effective Banking Supervision : Supervisors from around the world have revised the Core Principles for Effective Banking Supervision. Supervisory Board Vice-Chair Frank Elderson explains how this will make the global banking system safer and help supervision keep pace with our rapidly changing world View Article
The EBA has identified new types of payment fraud and proposes measures to mitigate underlying risks and protect consumers from resultant lo : to mitigate underlying risks and protect consumers from resultant losses. Fraudsters have adapted their techniques and are using more complex types of fraud, such as those based on what is commonly referred to as ‘social engineering’. View Article
Capital Markets Union
FSB introduces new global standard to support the orderly resolution of a central counterparty (CCP) : Standard requires that adequate liquidity, loss-absorbing, and recapitalisation resources and tools are available to maintain the continuity of a CCP’s critical functions and mitigate adverse effects on financial stability should resolution become necessary. View Article
AFME's Farkas: Bolder action needed to boost Europe’s capital markets : The global share of market capitalisation of listed shares in the EU has declined from 18% in 2000 to 13% in 2023; whilst the US has consolidated its position as the undisputed leader accounting for 50% of the world’s equity market cap in mid-2023. View Article
FT Alphaville: When light floods Europe’s bond market: In the beginning Europe created the union and the currency. But the bond market was without form, and void; and darkness was upon the face of the deep. So the Commission said: ‘Let there be light: and there was light.’ View Article
PensionsEurope report ”Road to DC: Understanding the Shift” : The objective of this paper is to explore the shift from DB to DC schemes taking place in many European countries and to provide some general solutions for building resilient and adequate retirement provisions in a more DC-oriented world. View Article
EFAMA: Advice-based distribution channels dominate European fund landscape : This report shows how investment funds are distributed to retail investors across 19 European countries, covering assets totalling EUR 4.4 trillion. Fund managers ..also shared their perspectives on the expected changes in the fund distribution landscape over the next five years. View Article
EIOPA report takes the pulse of digitalisation in the European insurance market : The findings of the report – based on responses to EIOPA’s 2023 Digitalisation Market Monitoring Survey and insights from a dedicated Eurobarometer poll – show a broad spectrum of practices in the market and point to substantial differences in the digital readiness of individual insurers. View Article
Environmental, Social, Governance (ESG)
ISSB publishes its digital sustainability taxonomy, helping investors analyse sustainability disclosures efficiently : The International Sustainability Standards Board (ISSB) has today published the IFRS Sustainability Disclosure Taxonomy (ISSB Taxonomy), fulfilling its promise to enable investors and other capital providers to analyse sustainability-related financial disclosures efficiently. View Article
Accountancy Europe welcomes CSDDD approval despite weakened provisions : After more than two years of legislative process, Member States will be able to start transposing the Directive into national laws in 2024, and businesses can get prepared. View Article
Equipping Accountants for Sustainability Reporting: IFAC Proposes Enhancements to International Education Standard : "The proposals provide a robust framework for the profession to develop capable accountants who produce, report, and assure sustainability information.” View Article
Invest for Better Climate EU: Assessing Retail Investor Sustainability Knowledge and Preferences in Spain/Poland/Germany/France : Invest for Better Climate is an educational and advocacy campaign, aimed at giving individual retail investors a better understanding of the impact on climate they have through their investments. View Article
Bankenverband's Neuman/Schwantes: 3 questions, 3 answers: ESG risk management : Nowadays, sustainability risks in the three areas of environmental, social and governance – or ESG for short – have become an integral part of banks’ risk management. After all, one of the main tasks of a bank is to quantify and manage risk. And ESG risks are no exception. View Article
Brexit and the City
PCS: PRA and FCA publish the new UK securitisation rules : These policy statements, each containing the full new proposed rules, can be found here and here. These rules, together with the statutory instrument will come into force on November 1st. View Article
EURACTIV: Britain rolls out post-Brexit plans for authorising EU investment funds : Britain set out its “roadmap” on Wednesday (1 May) for authorising investment funds from the European Union to offer products in the UK, a post-Brexit milestone that reflects how most funds sold to retail investors in the country are still listed in the EU. View Article
Bloomberg: Hunt’s Intervention Exposes FCA’s Widening Rift With Westminster : Regulator wants to name those under investigation earlier; Government’s relationship with regulators declined post-Brexit View Article
Reuters: Foreign investment in UK finance sector halves in 2023, says City of London : Foreign investment in Britain's financial and professional services halved to £1 billion in 2023, the City of London said. The sector is facing tough competition in capital markets, particularly for listings from New York and, since Brexit, EU financial centres such as Paris and Amsterdam. View Article
Brexit
BCC: Concerns Mount Over Customs Costs and Clarity : The BCC remains concerned about the impact on small British businesses of new customs checks and charges that come into force tomorrow (April 30). The second phase of the UK’s Border Target Operating Model will introduce charges of up to £145 for imports of plant and animal products. View Article
CER's Berg: Living next door to an elephant: Lessons for the UK from EFTA : After Brexit, the UK finds itself next door to a regional trade hegemon. Britain can draw useful lessons from the experience of the EFTA countries. View Article
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