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Welcome to our Friends weekly e-mail.
Highlights of my week: As the tenth European Parliament settles into its stride, it used its moment of peak power to extract a commitment from the Commission to treat it as an equal to the Council. The run up to the IMF meetings produced a crop of comments from the FSB and IMF staff highlighting the risks and the amount of work still to be done to make the financial system truly resilient. SUERF published a study showing that GPT4 was better at forecasting company earnings than the human financial analysts… SSM’s McCaul spoke about banks outsourcing activities to the cloud but still remaining responsible for ensuring their systems work properly. The Commission reported on its progress on the consolidated tape project, while ICMA and Better Finance commented on ESMA’s consultation about the effectiveness of order execution systems. Another straw in the ESG wind: a leading insurer is backing away from insuring mining companies with poor ESG records. Both FSB and CPMI wrote about the risk to financial stability that might come from tokenisation and the concepts for its regulation. Labour’s former Europe minister McShane bemoaned PM Starmer’s attitude to Europe – ‘reverting to type’ of earlier, sceptical Labour PMs. Graham Bishop Articles from 18-24 October 2024
Policy impacting Finance European Parliament and European Commission agree on strengthening cooperation : The revision of the Interinstitutional Framework Agreement will reinforce relations between our Institutions, ensure greater transparency and better dialogue. It will help our institutions to work seamlessly and deliver for our citizens. View Article
DG FISMA: Mairead McGuinness : Interview with the Commissioner on her mandate, where she thinks most progress was made, and how she sees the future of finance. View ArticleFSB's Knott: Strengthening Financial Resilience: Lessons from Pittsburgh : And it’s not only in 2020 that unprecedented policy actions were needed. In 2023 the fire brigade had to turn out again. So, we’ve made progress, but there is much left to do if we want a truly resilient financial system. View Article
IMF Blog: Global Financial Fragilities Mount Despite Rate Cuts and Buoyant Markets : by Adrian, Malik, Wu: Increased investor risk-taking could fuel vulnerabilities View Article
POLITICO Nagel/Veron: Breaking the vicious circle between banks and sovereigns for good : Twelve years after its initiation, it is time to complete the banking union. View ArticleCER's Meyers: Recent Insights Competition policy must reflect Europe's reality, not its aspirations : The European Commission is under pressure to tweak competition laws to promote European innovation. These efforts risk delivering all the downsides of America’s traditional approach to competition policy – such as higher prices – without any commensurate benefits. View Article
CEPS's Lanoo: The new European Commission must deliver for Europe’s future – but excessively emphasising ‘competitiveness’ could hinder this : Europe’s productivity gap with the US is somewhere between 12 %-30 %, depending on the measure used. And as the Letta Report also laid out well, the EU is just not enough of a single market – it’s too fragmented in finance and digital services, and energy is far too expensive. View Article
FSB urges stronger efforts to enhance cross border payments : FSB publishes reports detailing work to enhance cross-border payments and welcomes the significant achievements of standard setters and international bodies in reducing obstacles to more effective cross border payments. View ArticleFSB analyses interest rate and liquidity risks and the role of technology and social media on depositor behaviour : FSB analysis finds life insurers, non-bank real estate investors, and a weak tail of banks to be most vulnerable to the confluence of solvency and liquidity risks.Technological developments and social media could accelerate future bank runs... View Article
SUERF: Large Language Models and the Future of Financial Analysis : by Kim, Muhn, Nikolaev: provided standardized and anonymous financial statements to GPT4 and instruct the model to analyze them to determine the direction of future earnings.... the LLM outperforms financial analysts in its ability to predict earnings changes. View ArticleBanking Union SSM's McCaul: Supervisory expectations on cloud outsourcing : Using the cloud can be a viable strategy for banks to reduce the complexity of their IT operations, which would be a welcome development. But it also introduces new risks and new challenges, including preparing IT systems for use in a cloud environment. View Article
CEPS: The Judicial Scrutiny of the SSM and the SRB : by Arnal, Russo, Thomadakis: A missed chance or a success story? View Articlefinextra: Europe's Target Settlement system to join cross-border instant payment project : Europe's Target Settlement system is to join Project Nexus, a Bank for International Settlements initiative to connect domestic real-time networks across borders. View Article
Capital Markets Union Commission: Work continues towards a consolidated trading landscape for financial instruments in the EU : The reports contain a set of recommendations focused on key pre-conditions for the tapes to emerge, such as the quality of data to be transmitted to and disseminated by consolidated tape providers, as well as the timeline for disclosing the trading information around bonds and derivatives. View Article
ICMA responds to the ESMA MiFID II consultation on ‘Technical Standards specifying the criteria for establishing and assessing the effective : ICMA has responded to ESMA’s Consultation Paper on Technical Standards specifying the criteria for establishing and assessing the effectiveness of investment firms’ order execution policies. View Article
BETTER FINANCE Responds to ESMA's Consultation on Technical Standards Specifying the Criteria for Establishing and Assessing the Effectiveness of order execution : It is essential that these standards effectively safeguard retail investors, avoiding excessive documentation and overly technical language that could hinder understanding. View Article
EFAMA: Fund manager discretion is key for the best use of liquidity management tools : Given the wide variety of types, investment strategies, liquidity profiles and redemption policies of funds, we believe the manager is best placed to choose LMTs that will provide optimal results for a particular fund and its investors. View Article
ESMA launches survey on legal entities identifiers : Through this survey ESMA aims to raise awareness about recent developments and to collect feedback on the potential impacts of adding other alternatives to the Legal Entity Identifier (LEI) in future reporting or record keeping regimes, or in the review of existing reporting requirement. View Article
IAIS sets strategic direction for 2025-2029 : The IAIS has identified three strategic themes that will feature prominently in its work programme: climate change, digital innovation including the use of artificial intelligence and cyber risks, and the need for insurance to deliver on its societal purpose of building resilience. View Article
Risk managers adapt insurance strategies in response to market conditions as concerns grow about uninsurable risks, finds FERMA’s Global Risk : Report shows increasing adoption of captives in risk management strategies, with vehicles to be used to cover property, cyber, liability and supply chain risks over next two years. View Article
EIOPA opens consultation on criteria for selecting insurers to run macroprudential analyses : The Consultation Paper proposes both quantitative and risk-based criteria to determine which undertakings and groups should consider macroprudential elements in their ORSA and in how they apply the PPP. View Article
Environmental, Social, Governance (ESG) ICGN: Quality matters – reflections on the assurance of sustainability reporting market : Alongside financial reporting, disclosure of a company’s sustainability related risks, opportunities and material performance metrics, is important to investors to enable them to compare companies across markets and sectors. View Article
EBF: Role, mission and organisation of Central Sustainability Teams : The European Banking Federation conducted a survey among the CSO Roundtable members on the role, mission, and organization of central sustainability teams (e.g., Corporate Social Responsibility teams) within banks, View ArticleIFAC & Global Accountancy Profession Urge G20 to Prioritize Sustainability and Governance : The global accountancy profession, through the International Federation of Accountants (IFAC), is urging G20 leaders to focus on sustainability, transparency, and governance as the 2030 deadline for the United Nations Sustainable Development Goals (SDGs) approaches. View Article
UNEP FI: Physical Climate Risk Assessment and Management: An investor playbook : The playbook provides investors with a simplified step-by-step approach to integrate the identification, assessment and management of physical climate risks in the investment process. View Article
Commercial Risk: Mapfre backs away from mining firms with poor ESG records : “ESG has now moved to the centre of the underwiring process,” said Ana Pedrouzo, a senior property underwriter at Mapfre Global Risks. “Many, or probably most, companies now have a tool that gives us an ESG rating, and we will not write the risk if the rating is not good enough.” View Article
Protecting Customers European Supervisory Authorities share highlights from the 2024 Joint Consumer Protection Day in Budapest : The event followed the theme of “Empowering EU consumers: fair access to the future of financial services” and had three panels covering the topics of artificial intelligence (AI) in financial services, access to consumer centric products and services, and sustainable finance. View Article
Fin Tech Regulation FSB Chair sets out the FSB’s work to maintain financial stability amidst technological advancements : ...report on tokenisation finds low adoption in the financial sector to date, but warns that financial stability risks could rise if tokenisation scales up significantly and if identified vulnerabilities are not adequately addressed. View Article
CPMI: Tokenisation in the context of money and other assets: concepts and implications for central banks : The report sets out the concepts related to digital tokens and programmable platforms. Token arrangements can change existing market structures by providing platform-based intermediation across the end-to-end life cycle of financial assets. View Article
Brexit and the City The City UK's Bardalai: Financial and related professional services exports: a deeper dive into growth trends : The value of UK financial/related professional services exports increased by 56% between 2016-2023. Financial services (finance activities plus insurance) were 62% of this increase, and related professional services (legal, accounting and management consulting services) were 38% of the increase. View Article
PCS: UK PRA publishes its consultation on capital requirements, including many securitisation proposals : It is on capital requirements generally and so goes beyond only securitisation issues. Secondly, securitisation does feature prominently and with some meaningful proposals including a new "formula" based p factor and a proposed nod to unfunded SRT synthetics - but not synthetic STS though. View Article
Brexit Encompass's McShane: More than 500 MPs oppose Brexit but Starmer sticks with Boris Johnson's policy : In a sense Labour is reverting to type. Labour Prime Ministers from Clement Attlee to Jim Callaghan scorned European cooperation. Callaghan in retirement declared that he “preferred Empire to Europe”. View Article
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