Welcome to our Friends weekly e-mail.
This is the last "weekly" of 2024 and we will resume on 9 January 2025. In the meantime, I wish all my readers and viewers a Happy Christmas and a good New Year
Graham Bishop
Highlights of my week: The Non-Bank Financial Institution (NBFI) sector seems to be emerging from the shadows as the FSB reported that, globally, it is now the same size as the traditional banking sector and growing much more rapidly. There are clear risks to financial stability from its leverage – echoed in the ESRB’s recommendations following a review of its first decade. Debt sustainability is also emerging as a major issue as ECON’s study is sharply critical of the new rules. The resilience of the financial sector attracts much attention but the risk to the sub-sea cables that carry its data is only just surfacing. Both EBA and SSM pronounced on the EU’s banking sector: profitability is holding at high levels and liquidity (on the traditional metrics!) is high. The EU’s insurers were also given good marks in EIOPA’s stress test but the ECB and EIOPA jointly suggested that insurance coverage of natural catastrophe’s needs to be improved. According to the City of London, the UK remains the world’s top exporter of financial services, but questions remain about how much the City might benefit from the Government’s much-touted reset of relations with the EU. Sadly, in my latest video, I felt the need to explain why the reset is doomed – see below. In any case, the leaked draft of the Conclusions of tomorrow’s Heads of Government Summit (EUCO) does not even mention the UK but focusses instead on the potential accession of many other small states…Perhaps the fevered UK debate about “reset” has not made it onto the EU’s radar screen.
As 2024 draws to a close, I have recorded a video with the Federal Trust's Brendan Donnelly to set out my views about the prospects of a Brexit reset for the City of London. Sadly, I believe hopes of a major improvement are doomed as the plans will inevitably founder on the rock of derivative clearing.
A Brexit Reset for the City of London?
Articles from 13-19 December 2024
Policy impacting Finance
Better data sharing: Council and Parliament strike deal on financial reporting requirements : The new regulation will reduce administrative burden for authorities in the financial sector, by simplifying existing rules on data sharing between the European Supervisory authorities (ESAs) and other financial sector authorities and by limiting new reporting requirements. View Article
FSB consults on recommendations to address financial stability risks arising from leverage in non-bank financial intermediation : Proposed recommendations call for authorities to address financial stability risks from NBFI leverage in core financial markets; ensure sufficient counterparty credit risk management by leverage providers; and determine whether and how to address any inconsistencies in regulatory treatment. View Article
FSB reports strong growth in non-bank financial intermediation in 2023 : In 2023, the NBFI sector grew 8.5%, more than double the pace of banking sector growth (3.3%), raising the NBFI share of total global financial assets to almost 50% (roughly $250 trillion). This growth was largely attributed to higher asset valuations, which rebounded after a decrease in 2022. View Article
High-Level Group on the ESRB Review publishes report entitled “Building on a Decade of Success” : ESRB successfully fulfilling its mandate of macroprudential oversight; Best placed to monitor and assess systemic risks and vulnerabilities across the entire EU financial system; Proposals to further enhance holistic assessment of systemic risks View Article
Accountancy Europe: 10 principles for policymakers to reduce administrative burdens for companies : A key and immediate priority of the second Von der Leyen Commission is to act on the simplification and administrative burden reduction agendas. For example, the ‘omnibus package’ is expected already for 26 February 2025. View Article
Insurance Europe's Jones:Less (and better) is more: Why it is key to reduce reporting burden and take a different approach to new regulation : Regulation plays a key role in ensuring fairness and safety for European citizens and businesses. For insurers, efficient and effective regulation can help maintain customer trust and confidence, preserve the level playing field and allow cross-border growth and competition. However.... View Article
Bruegel: Incorporating political risk into analysis of sovereign debt sustainability : Political risk is not taken into account when assessing whether countries can manage their debts, but it could be and should be. Authors: Ajovalasit, Consiglio, Pagliardi, Zenios View Article
ECON study: Debt Sustainability Analysis: Assessing its Use in the EU’s New Fiscal Rules : A large share of euro area member states is highly indebted.. their debt ratios have experienced a strong and continued upward trend that needs to be reversed. The debt sustainability analysis..provides great flexibility . but exhibits weaknesses in transparency, robustness and credibility. View Article
Remarks by President António Costa at the press conference of the EU-Western Balkans summit in Brussels : During today’s summit, it was clearer than ever that the European Union and the Western Balkans belong to the same European family. The Western Balkans’ place is at the heart of our European project. View Article
Carnegie's Momtaz: The Macron Paradox: Domestic Crisis, International Swagger : Through diplomatic skill and strategy, French President Macron is making a recovery after a series of domestic and international setbacks. He now has a unique opportunity to expand Europe’s margins of maneuver on the global stage. View Article
Carnegie's Besch and Brown: Securing Europe’s Subsea Data Cables : As Russia becomes ever more emboldened in its attacks on European infrastructure, Europeans must invest more to leverage their existing advantages in this realm and protect the competitiveness, resilience, and security of their subsea cable infrastructure. View Article
Banking Union
EBA: EU/EEA banks’ profitability is holding up well despite declining net interest margin : The European Banking Authority (EBA) today published its Q3 2024 Risk Dashboard (RDB), which discloses aggregated statistical information for the largest EU/EEA institutions. View Article
EBA: EU banks’ liquidity coverage ratio increased in June 2024, underpinned by growth in banks’ holdings of liquid assets : The EBA published a Report on liquidity measures, which monitors and evaluates the liquidity coverage requirements currently in place in the EU. Between June 2023 and June 2024, EU banks’ liquidity coverage ratio (LCR) increased by 3 percentage points to reach 167%. View Article
Buch, Chair of the Supervisory Board of the ECB: the 2024 SREP results and the supervisory priorities : ..the banks directly supervised by the ECB generally have strong fundamentals. The asset quality of European banks is robust, they have overall solid capital positions, good levels of profitability, and are a reliable source of funding and financial services for European households and firms. View Article
EBF: Facts & Figures 2024 : Data also confirms the upward trend in the total assets held by EU banks, expanding in 2023 for the sixth consecutive year and amounting to €43.6 trillion. Findings include a slight decrease in reliance on deposits as a source of funding with the share of deposit liabilities over total assets reaching about 57% last year. View Article
Accountancy Europe: Navigating the EU Anti-Money Laundering Regulation : Key issues for the accountancy profession. The EU’s new Anti-Money Laundering Regulation (AMLR) is a major milestone in the fight against money laundering (ML) and terrorist financing (TF). View Article
Capital Markets Union
BETTER FINANCE Raises Alarm: Is the EU's Push for Securitisation Revival Putting Financial Stability at Risk? : BETTER FINANCE opposes the political push to "revive" the securitisation market in the European Union. It warns that this move risks undermining financial stability without delivering meaningful benefits to SMEs or retail investors, contrary to the promises being made. View Article
ESMA publishes its Final Report on bond transparency and reasonable commercial basis under MiFIR Review : The proposed pre- and post-trade transparency requirements for non-equity instruments are designed to ensure a high level of transparency whilst ensuring that liquidity providers are protected from undue risk. View Article
ESMA delivers final report on equity transparency under MiFID II : The report includes proposals for the amendment of the regulatory technical standards (RTS) as well as technical advice (TA) on the provisions on equity transparency..., View Article
CEPS' Thomadakis: Shareholder preferences and shareholder democracy : Aligning corporate governance with societal expectations. Growing awareness of environmental, social, and governance (ESG) issues has shifted the conversation. Shareholders today are increasingly vocal about matters beyond maximising financial performance.. View Article
EIOPA’s stress test shows EU insurers can handle surging geopolitical risks but at a heavy price : The exercise shows that insurers in the European Economic Area are overall well-capitalized and able to meet the Solvency II requirements even under the stress test’s severe but plausible shocks that stem from widespread supply-chain disruptions, low growth and renewed inflationary pressures. View Article
EIOPA’s financial stability report sees insurers and pension funds weathering a complex and uncertain risk landscape : These parts of the report examine institutional investors’ exposure to real estate, the rise of asset intensive (or funded) reinsurance, and the structure of EIOPA’s framework to assess systemic risk in the European insurance sector. View Article
ESMA consults on EU code of conduct for issuer-sponsored research : The EU CoC sets out standards of independence and objectivity for research providers and specifies procedures and measures for the effective identification, prevention, and disclosure of conflicts of interest (COI), with a view to enhance the trust in and use of issuer-sponsored research. View Article
Delors Centre's Mack: Out of the shadow: A macro-prudential framework for NBFI in the EU : ..the build-up of systemic risks in the NBFI sector must be addressed before they reach a dangerous level ... This paper makes recommendations for tackling the structural vulnerabilities posed by NBFIs and their potentially dangerous ties with banks and the broader economy. View Article
Environmental, Social, Governance (ESG)
EIOPA and ECB propose European approach to reduce economic impact of natural catastrophes : EIOPA and ECB propose possible EU-level approach to reduce insurance protection gap for natural catastrophes, building on existing national and EU structures; Two-pillar solution includes pooling private risks to increase insurance coverage and strengthening EU public disaster risk management View Article
IFAC, IFRS Foundation, IOSCO Share Insights to Advance Climate & Sustainability-related Reporting : Leaders in global sustainability standard setting, regulation, and accounting - jointly hosted by IFAC, the IFRS Foundation, and IOSCO to advance global adoption and implementation of the ISSB standards and build an understanding of sustainability assurance in its early days. View Article
Categorisation of products under the SFDR: Proposal of the Platform on Sustainable Finance : The proposal includes interlinkage with investors`sustainability preferences, .. streamlining existing elements of SFDR and the wider sustainable finance framework... indicators used to measure sustainability and the potential implications of introducing a new categorisation system ... View Article
ICGN: letter re ECB's Draft guide on governance and risk culture : ICGN agrees with the ECB that “governance and risk culture are essential features of anywell-functioning organisation”. We support the emphasis in the draft ECB Guide on effectiveboard oversight. View Article
2024 in review: An overview of IIGCC’s key resources for climate and nature action : Known as ‘the year of elections’, 2024 has been marked by challenges and progress for climate action. At IIGCC, our work followed four strategic priorities: net zero, nature, adaptation and resilience, and emerging markets and developing markets. .. some of our most popular releases of the year. View Article
GRI's Ozdemir: Navigating digitalization in sustainability reporting : Digital transformation, driven by technologies like data analytics and artificial intelligence (AI), is reshaping industries and sustainability reporting practices, creating both new opportunities and challenges. View Article
Fin Tech Regulation
ESAs’ Dry Run exercise shows the goal of reporting of registers of information under Digital Operational Resilience Act in 2025 within reach : The conclusions and lessons learnt as well as individual data quality feedback provided to financial entities during the exercise will aid preparations for the official reporting starting in 2025. View Article
ESMA releases last policy documents to get ready for MiCA : ESMA has delivered extensive regulatory work over the past 18 months, comprising more than 30 Technical Standards and Guidelines, many of them developed in cooperation with the European Banking Authority (EBA). View Article
EPI and the cooperative financial network announce the first successful end-to-end Wero e-commerce transaction with a German merchant : This Proof-of-Concept transaction was completed between the end of November and mid-December using Wero e-commerce payment solution between two local banks of Volksbanken Raiffeisenbanken cooperative financial network and VR Payment on the 1.FC Kaiserslautern online shop using the Wero solution. View Article
Brexit and the City
Federal Trust video - Graham Bishop and Brendan Donnelly: A Brexit Reset for the City of London? : Graham Bishop and Brendan Donnelly discuss the possibilities for a reset of relations in the financial sector between the UK and EU. They conclude that these possibilities are limited, given the commitment of the EU to retaining the greatest possible financial control within the euro area. View Article
UK remains world’s largest net exporter of financial services, new analysis reveals : With a trade surplus of £92.2bn, the UK remains the largest net exporter of financial services globally – larger than Singapore, Switzerland and Luxembourg combined, new analysis by the City of London Corporation shows. View Article
AFME: UK Call for Evidence Financial Services: Growth and Competitiveness Strategy : This paper outlines our high-level response to the call for evidence on the Government’s Financial Services Growth and Competitiveness Strategy, focusing on key areas such as sustainable finance, the adoption of emerging technologies, capital market funding, securitisation, investment research, and the cost of market data. View Article
FCA consults on new private stock market : Proposals for a new platform - The Private Intermittent Securities and Capital Exchange System (PISCES) - on which shares in private companies will be bought and sold have been set out by the FCA. View Article
AFME Response to CP 24/21: Investment Research Payment Optionality for Fund Managers : AFME welcomes the FCA proposal to cater for investment fund managers. This will ensure that all consumers of research are treated the same and will allow firms to apply rules consistently across the franchise, ... View Article
Brexit
What UK thinks's Sivathasan: Attitudes towards a new EU Referendum Vote : ...polling has suggested that voters, including those who backed leaving the EU, are not particularly happy with how Brexit has turned out. Around six in ten feel it has ‘gone badly’ and over a half of the public think that in hindsight Britain was wrong to vote to leave the EU. View Article
IfG's Rutter: The government needs to develop a robust EU strategy : It is the fifth anniversary of Boris Johnson's Get Brexit Done election – and the Labour government has much to do. The fifth anniversary of the Get Brexit Done election should remind the government of the need for a clear-sighted and realistic strategy for dealing with the EU. View Article
ECFR's Leonard: The cross-Channel reset: Trump, Putin, and shifting EU-UK opinion : View Article
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