Welcome to our Friends weekly e-mail.
Recent Highlights: The Easter break slowed the news flow but Commissioner Gentiloni seized the opportunity to argue that the RRF should be made a “permanent” feature – setting the stage for debate about a European `safe asset’ in the next legislative mandate. SUERF published a note questioning the sustainability of US public debt and the IMF highlighted the challenge of private credit to conventional/regulated markets, though POLITICO suggested that the EU might relax some banking regulations if the US does not implement `Basel’ fully. Bank valuations may be diverging anyway because of the EU’s tougher ESG regulations. EIOPA’s stress tests of insurers will include escalating geopolitical tensions this year and it is consulting on how to include natural catastrophe risks in its standards. The IFRS has updated its standards on presentation/disclosure in company financial statements just as ICGN proposed improvements to its Global Stewardship Standards. Project Syndicate's Pistor underlined the need for change by questioning whether Boeing’s problems will finally crash the concept of pure `shareholder value’. “Tokenisation” of the financial system may be taking a step forward as the BIS announced a project between seven major central banks and hundreds of private banks to explore tokenising cross-border payments.
The US drive to launch T+1 settlement is causing concern in Europe as FESE reported that the European T+1 Taskforce wants to explore close collaboration with the UK which is not yet seizing a “Brexit benefit” by aligning with the US. Ironically, the FCA seems set to abandon `unbundling’ of execution and research – a reform it foisted on a reluctant EU! Canada will impose tariffs on UK goods and the UK will soon levy substantial charges on imports – re-enforcing the UK’s declining trade intensity relative to G7 competitors. However, UK service exports continue to rise to new records – despite a significant decline in financial exports.
Graham Bishop
Articles from 29 March - 11 April
Policy impacting Finance
EURACTIV: Recovery fund should be ‘blueprint’ for permanent joint borrowing, EU Commission economy chief says : The EU’s economic chief Paolo Gentiloni officially called for turning the bloc’s Recovery and Resilience Facility (RRF) into a “permanent” resource on Tuesday, saying the “temporary nature” of the programme has so far prevented it from unleashing its full potential. View Article
Carnegie's Balfour/Lehne: Europe’s Radical Right Is Formidable—but not Unstoppable : Radical-right forces are already influencing EU policies and could determine the bloc’s future direction. Yet internal divisions give mainstream parties a tactical advantage in this pivotal election year. View Article
Delors Centre's Quaritsch: The electoral threshold will not save the European Parliament's ability to act : This policy position analyses the role of small parties in the European Parliament and proposes alternative strategies to avoid fragmentation: In order to protect Parliament's ability to act in the short and medium term, politicians should focus on winning back votes for a stable pro-European majority. View Article
CER's Begg: Dilemmas and challenges around the EU budget : The EU budget process needs to be reformed to cater for changing spending demands and a prospective enlargement with new member-states including Ukraine, Moldova, and countries in the Western Balkans. View Article
EUROPEAN COURT OF AUDITORS: Lobbying EU lawmakers: fair game? : But does the register adequately inform citizens about the potential influence of lobbyists? And do lobbyists have fair and equal access? Our auditors are on the case, and you will hear about their findings in April. View Article
The EFR published its Annual Report 2024: "Financial Services in Europe, fit for the future" : European capital markets are still fragmented along national borders and without a proper capital market, it will not be possible to finance all the investments required to address this ambitious agenda. View Article
SUERF's Pradhan/Perrier: Can the US sustain a rising debt burden? : The trajectory of US federal government debt is escalating, with debt held by the public potentially rising from just under 100% today to more than 170% of GDP in 30 years. This raises concerns about the feasibility of financing and the associated costs. View Article
IMF Global Financial Stability Report, April 2024 Chapter 2: The Rise and Risks of Private Credit : Chapter 2 assesses vulnerabilities and potential risks to financial stability in private credit, a rapidly growing asset class....that now rivals other major credit markets in size. View Article
Banking Union
EU banks are robust, but signs of credit quality deterioration are becoming apparent, the EBA’s Risk Dashboard shows : ..early signs of credit quality deterioration have become more apparent. The publication also includes information on minimum requirements for own funds and eligible liabilities (MREL). View Article
POLITICO: EU hints at relaxing parts of global bank rules in face of US delays : European Commission “stands ready to act if necessary” after U.S. said alterations to its plan were likely. View Article
Switzerland Is Reworking Its Rulebook to Stop Another Banking Meltdown : The government is unveiling banking reform proposals, and a new regulator is in charge View Article
Capital Markets Union
CFA/BETTER FINANCE: EU Listing Rules need to offer more effective support for SMEs, investment industry surveys find : Ahead of the European Parliament plenary vote on the EU Listing Act agreement, research from CFA Institute and BETTER FINANCE analyses investment professionals and retail investors’ views on whether EU listing rules are doing enough to reduce regulatory burdens for SMEs View Article
IOSCO: Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices : The Report focuses on equity exchanges but may be of relevance to other types of trading venues and trading in other classes of financial instruments. View Article
EIOPA consults on natural catastrophe risk reassessments in the standard formula : EIOPA is launching today a public consultation on reassessing natural catastrophe risks in the standard formula. EIOPA’s review of the parameters aims to better capture the risks stemming from perils such as earthquake, flood, hail and windstorm.. View Article
EIOPA stress tests European insurers’ resilience with a scenario of escalating geopolitical tensions : This year’s exercise envisions a re-intensification or prolongation of geopolitical tensions and assesses how European insurers would cope with the wide-ranging economic and financial market consequences of such an event. View Article
ESMA publishes first overview of EU securities financing transactions markets : SFT markets overview: The total outstanding exposure of SFTs was EUR 9.8tn in September 2023. Repos accounted for EUR 6.7tn or 68% of the total, securities lending for EUR 2.3tn (23%), buy-sell back for EUR 743bn (8%), and margin lending for EUR 124bn (1%). View Article
ESMA consults on possible amendments to the Credit Rating Agencies Regulatory Framework : The objective of the proposals is to ensure a better incorporation of ESG factors in the credit rating methodologies and subsequent disclosure to the public, as well as to enhance transparency and credibility in the credit rating process. View Article
Environmental, Social, Governance (ESG)
ESRB publishes report on how climate-related risks are reflected in IFRS financial statements : The report concludes that while IFRS generally enable entities to effectively reflect climate-related risks in their financial statements, minor amendments would have positive implications for financial stability. View Article
New IFRS Accounting Standard will aid investor analysis of companies’ financial performance : The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, will give investors more transparent and comparable information about companies’ financial performance, thereby enabling better investment decisions. It will affect all companies using IFRS Accounting Standards. View Article
ICGN: Proposed Revisions to the ICGN Global Stewardship Principles : The new draft presents a more succinct and cohesive narrative based around the following chapters:1. Stewardship commitment; 2. Robust governance; 3. Company monitoring and engagement; 4. Voting and other ownership rights; 5. Public policy advocacy View Article
Project Syndicate's Pistor: Will Boeing Crash Shareholder Value? : Boeing’s self-inflicted woes hold broader lessons for contemporary corporate governance. Once again, we see how the misguided idea of shareholder value can serve powerful financial interests while destroying what business organizations are best at and leaving many other stakeholders worse off. View Article
UNEP FI: Climate Risk Landscape Report 2024 : This edition provides best practices for tool utilisation, case studies, and recommendations to navigate the dynamic climate risk tools market. It also offers insights into the rapidly evolving regulatory developments around climate-related disclosure frameworks and recent market developments. View Article
GRI: Shaping the future of sustainability policy : GRI publishes guides to foster better disclosure and standards-based policymaking. With a continued shift towards mandatory sustainability reporting, GRI is supporting global policymakers with an initial set of three new guidance documents. View Article
80% of Global Investors Now Have Sustainable Investment Policies in Place: Deloitte/Tufts Survey : The vast majority of professional investors globally have put in place ESG investment policies over the past several years, with investors looking both to minimize sustainability-related risk and capitalize on opportunities, and citing factors including regulatory requirements,...... View Article
Green Budgeting in OECD Countries 2024 : This report provides an overview of green budgeting practices across OECD countries based on the 2022 OECD Green Budgeting Survey, as well as the index methodology for the Survey. View Article
Bloomberg's Schwartzkopf/Comfort: Bank Valuations at Stake as EU Splits With US Over ESG Risk : ECB studies banks’ inclusion of ESG in loan-loss provisions; EU is fast diverging from US in enforcement of ESG regulations View Article
Fin Tech Regulation
Project Agorá: central banks and banking sector embark on major project to explore tokenisation of cross-border payments The Bank for International Settlements (BIS) together with seven central banks today announced plans to join forces with the private sector to explore how tokenisation can enhance the functioning of the monetary system. View Article
ESMA publishes outcome of first year of the DLT Pilot Regime : ESMA has opted for this format instead of the report mandated under the DLT Pilot Regime because no DLT market infrastructures have been authorised under the Regime to date, rendering a full report premature. View Article
IMF blog: Rising Cyber Threats Pose Serious Concerns for Financial Stability : Greater digitalization and heightened geopolitical tensions imply that the risk of a cyberattack with systemic consequences has risen View Article
Bankenverband: Is Tech the Answer? : Banks are grappling with the increasing demand from customers for a flawless and smooth digital experience while facing fierce competition from global financial institutions — all while under the watchful eye of many regulatory authorities. View Article
CEPS's Marcus: Digital aspects of the EU Single Market : Still an incomplete work in progress? View Article
Economic Policies Impacting EU Finance
EBF Tax Conference 2024: “Banks as Taxpayers and as Auxiliaries to Tax Authorities in the Digital Era” : Leveraging the expertise of distinguished panellists and moderators, including top EU and international policymakers, as well as industry experts, the conference explored the role of banks in tax processes in the digital era and discussed pertinent policy questions ahead of the next EU legislature. View Article
Brexit and the City
FESE: European T+1 Industry Task Force comments on recent UK report on moving to T+1 & outlines its next steps : The European T+1 Industry Task Force welcomes the recent publication of a report by the Chair of the UK Accelerated Settlement Task Force ...tthe “UK and other European jurisdictions should continue to explore opportunities for close collaboration…to see if they can align their moves to T+1.” View Article
ICMA welcomes Geffen Report on faster settlement of financial trades in the UK : While the report reflects the Chairman's personal views and conclusions, we recognise the positive evolution over the past months which have led to an overall more balanced report that ICMA can broadly support. View Article
POLITICO: The City of London rejects its latest Brexit benefit : The U.K. has the chance to align with the U.S. rather than wait around for the EU — but the square mile isn’t biting. View Article
Bloomberg's Blas: The LSE Losing Giants Like Shell Is a Very Real Threat : The risk of losing Shell’s listing to New York is a bigger threat to the City of London than missing out on a few IPOs. View Article
EIOPA: Supervisory Statement on the supervision of reinsurance concluded with third-country (re)insurance undertakings : .. the objective of this supervisory statement is to highlight the risks stemming from the use of reinsurance provided by reinsurers operating under regulatory regimes not recognized as equivalent to Solvency II. [Editor's note: UK does not have a Solvency II equivalence decision] View Article
Transition Plan Taskforce: Latest transition plan resources published : There is now an internationally recognised best practice disclosure framework for transition plans, accompanied by a comprehensive suite of resources to support companies and financial institutions globally to mobilise transition finance. View Article
CITY AM: Why UK services exports have continued to grow post-Brexit : Services exports reached a record £470bn in 2023, up seven per cent compared to the previous year adjusting for inflation. View Article
FT: FCA proposes to reverse Mifid rules on investment research : UK regulator says asset managers should be able to pay for ‘bundled’ research and trading fees View Article
Brexit
POLITICO: UK goods face new Canada tariffs in latest Brexit trade blow : Hopes of a last-minute resolution have been dashed. View Article
BCC: Government Fails To Listen On Costly Import Charges : “This is an extremely disappointing decision by Defra on the common usage charge. The level of import charges shows scant regard to the interests of both businesses and consumers. .." View Article
UKandEU: UK Trade Tracker Q1 2024 : The tracker examines how UK trade measures compare to 2019 as well as the proportion of total UK trade with the EU. It also looks at a breakdown of UK total trade by country and region. In addition, the tracker looks at the UK’s trade balance and trade openness compared to the G7. View Article
IfG's Rutter: Brexit is not done – and the UK needs to rethink how it manages its relationship with the EU : Whoever wins the election will face seven key Brexit questions. Whether it is led by Rishi Sunak or Keir Starmer, the next government needs to engage with a series of pressing and complex questions on the UK’s relationship with the EU, says Jill Rutter View Article
Federal Trust's Stevens/Donnelly: video The debate never ends : In this new Federal Trust video, Brendan Donnelly and John Stevens review some recent surprising contributions to the Brexit debate. They suggest that the debate on Brexit continues to evolve, even though leading politicians do their best to suppress it. View Article
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