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AFME and PwC identify trends and challenges for European ‘investment banks of the future’
16 Nov 2020
The COVID-19 pandemic has accelerated the journey of investment banks’ technology transformation, but both consistent regulation and further investment are needed to ensure banks in Europe can deploy competitive technology, according to a report published today (16th November) by the Association for Financial Markets in Europe (AFME) and PwC. The Technology and Innovation in Europe’s Capital Markets report surveyed the largest investment banks in Europe to assess their technological progress over the past two years. Findings reveal that banks have accelerated adoption of emerging technologies and new ways of working. However, insufficient IT investment, complex legacy systems and increasing regulatory requirements, remain some of the key barriers for further progress. Among the key findings from the report: 50% of respondents believe that investment allocated to technology transformation is sufficient, up from 28% in 2018. 63% of investment banks are now implementing cloud computing, up from 33% in 2018. However, only 17% of respondents believe the benefits of new technologies are being realised across their organisation. 61% of investment banks see operational resilience as one of the top priorities for their technology transformation. 90% of respondents believe the COVID-19 pandemic will be a catalyst for future technology and operations change. James Kemp, AFME’s Managing Director, said: “Capital markets demonstrated significant resilience through the COVID-19 pandemic, adjusting to extensive remote working and high market volatility without major disruption. Innovation is crucial for banks to continue serving their clients, though it’s clear that the emerging regulatory framework also needs to adapt to support, not limit, innovation at this critical period of change. “New regulatory initiatives need to remain technology-agnostic, risk and principles based, globally consistent, and follow the principle of ‘same activity, same risk, same regulation’. This will allow the industry to continue harnessing the benefits of new technologies whilst minimising risks.” Mark Leaver, Partner at PwC, said: “The capital markets industry in the UK and Europe is at a critical juncture with continued pressure on revenues and costs, and the opportunity that technology provides. Since our initial report was published in 2018, progress has been made in areas such as cloud computing, and the response to the pandemic has demonstrated the resilience of operations and systems. However, it is clear that much work remains. “The industry needs to step up its commitment to automation, technology simplification and leveraging the opportunities of new technology. Culture change, collaboration and building new ecosystems will be critical to meet the pace of adoption required. Regulators will play a part here as a new framework emerges that will help shape the industry over the coming years.” The report predicts a shift to a longer-term transformation strategy across the investment banking industry. AFME and PwC have identified five calls to action which the industry should adopt in the next two-three years. These are: Prioritise investment in a long-term and clear change agenda Accelerate the convergence of business and IT capabilities for increased agility Create an incentive structure for investment banks and third parties to collaborate Build an organisational culture for innovation Ensure collaboration for a new regulatory framework – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747 Notes: The first report in 2018 can be found here. Key findings from this year’s report include: The report surveyed the largest investment banks in Europe to assess their technological progress over the past two years. It comes against a backdrop of new regulatory requirements emerging in the areas of technology and resilience – such as the extensive EU September 2020 digital package focused on crypto-assets, digital operational resilience, data and artificial intelligence (AI) – and the ongoing pandemic. The four key technologies identified in our first 2018 report - artificial intelligence, cloud computing, data & analytics, and distributed ledger technology (DLT) - continue to drive change across bank functions, the workforce, and engagement with third parties. However, levels of adoption vary, and only 17% of respondents to our survey believed that the benefits of these new technologies were now being realised across their organisation. There has been significant increase in the adoption of cloud computing which is now viewed as a foundational component for investment banks technology transformation; 63% of investment banks surveyed are now progressing implementations rather than pilots (against 33% in 2018).
AFME report tracks European capital markets performance in 2020
28 Oct 2020
Press releaseavailable inEnglish,French,German,Italian,Spanish. Individual country analysis available for France, Germany, Italy, Spain. Unprecedented levels of capital markets funding supported businesses in the first semester of 2020 Bond issuance has increased, with growth of social bonds consolidating Europe’s ESG leadership However, an undersized equities market means SMEs continue to rely on bank loans, restricting their opportunities to grow Securitisation volumes continued to fall, limiting bank’s capacity to expand their lending Capital markets union needed more than ever to support long term recovery European capital markets provided record amounts of funding to support businesses and economies in 2020, but lack of progress on the Capital Markets Union could hold back Europe’s economic recovery, according to a report published today (28th October) by the Association of Financial Markets in Europe in collaboration with 10 other European and international organisations. The third edition of the “Capital Markets Union Key Performance Indicators” report tracks how individual member states have progressed on key metrics such as access to finance, levels of bank lending, transition to sustainable finance and a supportive fintech environment. Adam Farkas, Chief Executive of AFME, said: “Our report demonstrates that despite the economic shock from the covid-19 pandemic, European capital markets were resilient in 2020 with unprecedented levels of bond market issuance including continuing leadership in sustainable bonds.. However, a dramatic increase in bank loans means that Europe remains highly dependent on bank lending. Equally, while member states have taken steps to foster innovation in their economies, investment in fintech companies is still below that of other major regions such as the US and China. If Europe is to achieve a strong economic recovery and ensure that it is globally competitive, further progress needs to be made in this e and other areas to strengthen its capital markets. “More broadly, these findings highlight the necessity for urgent action to encourage deep and extensive European capital markets capable of meeting the needs of borrowers and savers and thereby , f promoting long-term economic growth. This requires policy support for the means to re-equitise businesses and to improve the functioning of securitisation, among other areas of work. We are pleased to see the Commission taking action and urge policymakers to seize the opportunity to work towards a fully-fledged and globally-competitive Capital Markets Union.” Key findings show that in the past 12 months, including the six months since the start of the pandemic, the EU has seen: Unprecedented levels of capital markets funding: funding from capital markets instruments, predominantly fixed income securities, increased by 44% YoY. This has resulted in an increase in the proportion of market finance for EU businesses from 11% in 2019 to 14.5%. Securitisation remains subdued: Covered bond issuance has increased 82% YoY (predominantly of retained covered bonds) driven by the large increase in new lending stemming from the COVID-19 pandemic and the ongoing central bank support for this product. Securitisation volumes have fallen year-on-year since the onset of the STS regime. Loan Portfolio sales have fallen steadily since the peak volume of EUR 182.5bn was recorded in 2018 to EUR 28.7 bn during the first half of 2020 as banks continue to shed NPLs from their balance sheets. Growth of social bonds consolidates Europe’s ESG leadership: Throughout H1 2020, nearly one third (27%) of sustainable bond issuance in Europe was categorised as social, the largest proportion of the sustainable market in any half year to date. SMEs continue to rely on bank loans: Bank lending to EU27 SMEs totalled EUR 573bn in H1 2020 compared with only EUR14.1 bn in risk capital investment (venture capital, private equity, business angel and equity crowdfunding). Record increase in personal savings: European households have increased their savings rate to record levels at 16% of their disposable income in 1Q 2020 (vs. 12% in 2019). However, most of those savings have been predominantly invested into low-yield bank deposits. Progress on fintech, but EU still lagging behind: Seven European countries launched fintech innovation hubs over the last year. However, investment into EU27 fintech companies during the first half of 2020 (EUR 1.5bn) continues below that of other major regions like the US (EUR 7.4bn) and the UK (EUR 2.1bn) European integration remains resilient: compared to the 2008 financial crisis, in 2020 there have been no signs of significant deterioration of European integration. The COVID-19 crisis has not significantly disrupted the intra-European cross-border funding flows, with companies seeking to raise finance within Europe to navigate the pandemic. Bond issuance marketed within Europe increased to 96% in 2020 vs. 93% in 2019 and 60% in 2007. Integration with the rest of the world slightly deteriorated in H1 2020. The report was authored by AFME with the support of the Climate Bonds Initiative (CBI), as well as European trade associations representing: business angels (BAE, EBAN), fund and asset management (EFAMA), crowdfunding (ECN), retail and institutional investors (European Investors), stock exchanges (FESE), venture capital and private equity (Invest Europe), private credit and direct lending (ACC) and pension funds (Pensions Europe). – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME: now it’s time to deliver on the Capital Markets Union
24 Sep 2020
AFME has welcomed the publication of the European Commission’s Capital Markets Union Action Plan published today, 24rd September. Pablo Portugal, Managing Director for Advocacy, said: “The combined challenges of Covid-19, Brexit and the green and digital transitions mean the Capital Markets Union project has never been more urgent. Now, more than ever, we need strong, efficient capital markets that can promote long-term economic growth, support financial resilience and strengthen the EU’s competitiveness on the global stage. Policymakers must seize the opportunity to work towards a fully-fledged and globally-competitive CMU.” “A successful delivery of the Action Plan initiatives will require a strong commitment to EU integration and high-quality regulation that contributes to deepening capital markets and improving end-user outcomes. While all initiatives must be pursued with ambition and without delay, we emphasise the urgency of measures to support long-term investment, promote re-equitisation and improve the functioning of securitisation.” AFME strongly supports the following policy recommendations contained in the report: Promoting investment and a re-equitisation of Europe’s economy: We welcome the commitment to seek to provide an appropriate prudential treatment of long-term SME equity investments by banks, as well as a pledge to assess possibilities to promote market-making activities. A review and simplification of listing rules, particularly for SMEs, should be prioritised on the basis of careful analysis. Enhancing efficiency, connectivity and competitiveness in securities markets: Authorities must redouble efforts to deliver on the introduction of a common EU-wide system for withholding tax relief at source and the establishment of an EU-wide definition of “shareholder”, as well as increased convergence of non-bank insolvency law, to improve legal and operational consistency and tackle long-standing barriers. It is encouraging that the Commission intends to take forward the establishment of an effective post-trade consolidated tape for equity instruments, a project with the potential to democratise access to European markets. The wider MiFID 2/R review will be fundamental to further promote a diverse and well-regulated capital market that supports the needs of investors and consumers. Restoring a well-functioning European securitisation market: It is now more important than ever to support high-quality securitisation and deliver a more proportionate framework aligned with comparable fixed income investments. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
European Commission Digital Finance Package takes “important step forward” for Europe
24 Sep 2020
The Association for Financial Markets in Europe (AFME) today shares its support for the publication of the European Commission’s (Commission) ‘Digital Finance Package’. The package takes an important step towards addressing regulatory fragmentation, supporting cross-border activity, improving digital operational resilience, and encouraging technology adoption and innovation in European wholesale capital markets. James Kemp, Managing Director, Head of Technology and Operations at AFME, said: “This publication is an important step forward in creating a regulatory environment that is fit for purpose, promotes the application of “same activity, same risk, same regulation’‘, and ensures that Europe leads in the digital age.” “In the current global climate, the importance of technology in enabling connected, secure, and resilient financial markets is set to grow. To help support this growth, a strong framework for crypto-assets along with a harmonized framework for digital operational resilience will be key in underpinning innovation in the EU.” “Yet, whilst the package is a positive step forward for Europe, we must continue to ensure the focus is on developing a harmonised and globally coherent approach. This will allow market participants to innovate, in a risk and principles-based manner, and best serve the needs of their clients.” Notes for Editors: The Digital Finance Package will help in the delivery of the Capital Markets Union (CMU) that today also saw its Action Plan released. We welcome that the Commission’s Digital Finance Package aims to harmonise rules on digital operational resilience by improving the efficiency, coordination, and consistency of Information and Communications Technology risk management across Europe: It will be vital that future measures continue to support firms in taking a risk and principles-based approach to technology adoption, and their engagement with third party providers, which will allow them to drive greater efficiencies and improve products and services. International cooperation will also remain essential to ensure that the EU continues to support global resiliency efforts and greater standardisation cross-border. Further, we welcome the Commission in bringing forward a harmonised EU framework for crypto-assets as a vital step in providing regulatory certainty for market participants and ensuring a level playing field: We commend the Commission for identifying which existing EU financial services regulations could apply, and for proposing targeted amendments to ensure those regulations are fit for purpose. We believe the proposed pilot regime for Distributed Ledger Technology Financial Market Infrastructures, if designed appropriately through close engagement with stakeholders, could support the development of the regulated crypto-asset market and help solidify Europe’s position as a global leader. For more information, please see our recent paper “European Capital Markets in the Digital Age” here. -ENDS- AFME Contact Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME welcomes Commission equivalence decision on UK CCPs
21 Sep 2020
Following the confirmation of the European Commission adoption of a time-limited equivalence decision for UK CCPs, Oliver Moullin, Managing Director at AFME said: “We welcome today’s confirmation that the Commission has adopted a time-limited equivalence decision for UK CCPs. This is a vital step to address an important financial stability risk and ensure continued access for EEA firms to clearing services at the end of the Brexit transition period. It is important that ESMA now proceeds with timely recognition. We hope that progress will be made in the negotiations and completing equivalence assessments in other areas. We continue to encourage EU, the UK and national member states to take action to address remaining risks at the end of the transition period such as the implications of the trading obligations for shares and derivatives, and continued servicing of existing contracts.” Background / note to editors: AFME recently published a paper setting out its position on the future EU-UK relationship for financial services, calling both sides to put in place equivalence determinations and address regulatory challenges as soon as possible to minimise disruption to markets and businesses. The annex of the paper also highlights outstanding regulatory challenges for financial services that should be addressed ahead of the end of the transition period. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME calls for data-led approach on market structure policymaking
18 Sep 2020
AFME is calling on policy makers to use independent data to support their review of equities markets structure with a view of promoting competitive, diverse, well-regulated and innovative European capital markets which are more efficient to attract further investment. The pan-European trade association is launching a data-driven initiative today (18th September) to highlight the threat of inaccurate information and market data, and promote a fact-based approach to policymaking. The initiative is launched with a video highlighting the importance of a diverse equities market structure for the benefit of investors and issuers, and follows the publication of an AFME analysis of the liquidity landscape in Europe, produced using data provided done by independent analytics firm Big XYT that revealed For the first six months of 2020, 81% of addressable liquidity was executed on-venue, 13% on systematic internalisers and 6% over the counter (OTC). The share between these trading mechanisms remained stable after the application of MIFID II, with the quality of price formation remaining strong. Functions served by different trading mechanisms are not always interchangeable. In particular, trading done in exchanges is not interchangeable with the service provided by systematic internalisers, which play a critical role in the provision of liquidity for pension and investment funds. April Day, Head of Equities at AFME, said: “A diverse and well-regulated capital market, with a range of trading mechanisms and not reliant upon one category of trading venue, better supports the needs of investors and their customers. By promoting competition, a diverse trading landscape lowers costs and promotes the growth of well-regulated capital markets, ultimately benefiting consumers’ pensions and savings. “We believe financial markets policy should prioritise the needs of end users, as the ultimate beneficiaries of capital markets, in maintaining orderly and well-functioning markets. We are launching this campaign to dispel myths on the current share of liquidity between different types of trading mechanism and promote a data-driven approach to policy making. Further competition and well-regulated innovation supports the goals of the Commission’s Capital Markets Union initiative. “We hope that this initiative will be helpful to policymakers and regulators and anyone interested in understanding the true nature of equities market structure. Transparent, reliable data should be a priority in informing changes to legislation and ensuring the principles of MiFID stand strong.” The video can be found here Read more about AFME’s data-driven approach here – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
AFME calls for the EU to unlock innovative, competitive, and resilient European capital markets in the digital age
14 Sep 2020
AFME is calling on the EU to help unlock the potential of new technologies for European capital markets. In a paper published today (14th September), AFME outlines the regulatory framework needed to support banks as they adopt new technologies such as crypto-assets, artificial intelligence and cloud computing, harness the value from data, and address the challenges of cybersecurity and operational resilience. The “European Capital Markets in the Digital Age” paper calls on the European Commission to promote innovation, competitiveness, and resilience across Europe’s capital markets by providing: A competitive and level playing field: Ensuring all firms involved in financial services, including technology firms, adhere to the ‘same risk, same activity, same regulation’ principle Technology neutral legislation: Providing flexibility for firms to adopt new technologies in a risk based and proportionate manner Global consistency: Promoting regulatory harmonisation across the EU, and global cooperation and consistency to reduce the barriers for technology adoption James Kemp, Managing Director, Head of Technology and Operations at AFME, said: “Evolving technologies are enabling innovative financial products and services, improving the resilience of financial markets, and supporting new ways of working. It is important that consistently applied regulation supports these new technologies to unlock a vibrant and competitive Digital Single Market and build stronger, more efficient capital markets infrastructures. The COVID19 pandemic has reinforced this requirement, demonstrating how technology and has underpinned the continued functioning and resilience of capital markets.” For more information on AFME’s paper, click here AFME Contacts Patricia Gondim [email protected] +44 (0)20 3828 2747
First industry roadmap helps embed sustainable finance into banks’ strategy and governance
10 Sep 2020
Banks need to embed sustainable governance principles across the whole organisation and adopt a consistent corporate strategy if they are to successfully transition to a sustainable finance model according to guidance issued today, 10th September, by the Association for Financial Markets in Europe (AFME) and global law firm Latham & Watkins. The industry roadmap “Transition to Sustainable Finance” looks at the challenges facing firms as they integrate ESG principles into their business models and addresses issues such as corporate purpose, board governance oversight, shareholder activism and greenwashing. The roadmap is the first to look at how firms are set to deliver on their sustainable finance targets and aims to provide boards and senior leadership with a go-to guide on issues to consider from a governance, compliance and legal perspective. The guidance comes as a new AFME survey highlights that sustainable finance is a priority board issue and banks have made considerable progress to adapt their business model to deliver on sustainable finance targets. Looking into how 13 of the biggest global banks are structured to adopt sustainable finance principles, the survey reveals: 85% of respondents incorporate sustainable finance into their overall business strategy 85% have set sustainability targets 77% have established Board level oversight on sustainable finance 63% have started integrating sustainable finance considerations across risk management and business development but more work lies ahead for other functions Richard Middleton, AFME’s Managing Director, Head of Policy Division, said: “Sustainable finance is a fast-moving area and the regulatory environment is evolving rapidly. As all areas of firms’ businesses are affected in the transition to sustainable finance, it is important that firms establish and develop their corporate strategy, governance, purpose and objectives. “Our White Paper is intended as a roadmap to help senior management and the board to embed sustainable finance in a holistic and systematic manner across the business.” Judson Berkey, Managing Director, Sustainability Strategy, UBS said: "The sustainability journey for a bank involves more than just creating new products. A transformation is needed to embed new thinking into all aspects of the firm including governance, risk management and compliance. This thought leadership paper highlights key considerations in that crucial effort." Nicola Higgs, partner at Latham & Watkins, added: “We are delighted to have worked with AFME and its members to create a practical framework for the financial services industry looking to navigate the transition to sustainable finance. Financial services firms are seen as key players in driving the sustainability agenda of global regulators, presenting both opportunities and risks for those firms. The Paper provides a framework to navigate those risks and remain competitive in an increasingly significant global market.” Note to editors: The roadmap “Transition to Sustainable Finance” sets out 15 key principles in the areas of governance, conduct and compliance that banks should consider, including: Objectives and governance: Ensuring that a central corporate purpose is set and that there is collective understanding, oversight and accountability in relation to sustainable finance-related risk amongst internal and external stakeholders. Risk management: Whether sustainable finance create new risks for an organisation, and if so, how to integrate them into current risk management. Compliance & Monitoring: How to measure, monitor and mitigate the key risks arising from the transition to sustainable finance, including the tools and metrics that may be necessary to achieve this. Impact measurement: How to assess the progress and effectiveness of existing strategies deployed against established sustainable finance goals and determining what adjustments, if any, are required and identifying opportunities for further development and innovation. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747