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Capital Markets Union needs bolder action to tackle remaining obstacles
16 Oct 2019
The full report can be found here. Press release available inFrench,German,ItalianandSpanish. AFME, in collaboration with 10 international organisations representing global and European capital markets stakeholders, has today published the second edition of its annual report tracking the progress to date of the European Commission’s flagship Capital Markets Union (CMU) project through 8Key Performance Indicators (KPIs). The report entitled, ‘Capital Markets Union Key Performance Indicators’ includes a country-by-country comparison of individual EU Member State progress against the CMU’s objectives. This year’s report also includes a new indicator measuring how well EU28 countries are enabling investment in FinTech. Simon Lewis, Chief Executive of AFME, said: “As the EU begins a new political cycle, there is an increasing focus on the need for the European Commission to further develop the Capital Markets Union. While some of our report’s indicators show a positive trajectory since last year’s results, such as Europe’s global leadership in sustainable finance, it is clear that there is still much work to be done at European and national levels, particularly on making Europe’s capital markets more competitive.” The 8 KPIs assess progress in the following CMU policy priority areas: Market Finance indicator: how easy it is for companies to enter & raise capital on public markets; Household market investment indicator: to what extent retail investment is being fostered; Loan transfer indicator: to what extent banking capacity is supporting the wider economy; FinTech indicator: to what extent national countries are enabling investment in FinTech; Sustainable Finance indicator: to what extent long-term investments in infrastructure and sustainable investment are being made; Pre-IPO Risk Capital indicator: how well start-ups and non-listed companies are able to access finance for innovation; Cross-border finance indicator: to what extent cross-border investment is being facilitated; Market depth indicator: measuring the depth of EU capital markets. Among the report’s key findings: Europe strengthened its global leadership in sustainable finance Issuance of green, social and dual-purpose bonds (i.e. bonds that meet the definition of both green and social) increased 16% in the EU during 2018 to €69bn, an increase of €9bn compared to 2017. EU 27 lags behind on FinTech funding EU27 FinTech companies have only benefited from $7.2bn in investments (venture capital, seed, angel and private equity) since 2009, compared with $120bn in the US, $20.3bn in the UK and $23.8bn in China. The UK lead is driven by its suitable regulatory environment and a deep local funding environment for new companies. Europe’s reliance on bank lending has increased European companies continue to over rely on bank lending, with 88% of their new funding in 2018 coming from banks and only 12% from capital markets – a decline from 14% on average in 2013-2017. The availability of pools of capital in Europe decreased in 2018 Owing to a temporary deterioration in asset prices, the value of household savings invested in capital markets instruments in the EU (i.e. equity shares, investment fund shares, bonds, insurance and pensions) decreased from 118% of GDP on average in 2017 to 113% of GDP in 2018. Europe continues to increase amount of risk capital available for SMEs to finance their growth SMEs experienced an annual increase of 8% in investment from private equity growth funds, 12% from venture capital, 24% in equity crowdfunding, 8% in business angel financing and 5% in new SME bank lending. Pre-IPO risk capital represented 2.64% of the total annual flow of SME financing (including bank lending) compared to 2.55% in 2017 and 1.4% in 2013. The EU capital markets ecosystem deteriorated in 2018 This was predominantly due to the decline in issuance of market instruments such as equity shares and bonds and the deterioration in the total value of household financial savings following the decline in asset prices at the end of 2018 (as earlier noted). However, the CEE region saw an encouraging increase in primary issuance of equity shares and bonds. More NPLs were converted into capital markets instruments Loan portfolio disposals by EU banks increased 32% during 2018 to €182 bn— the largest annual amount traded on record. This was driven by another year of considerable growth in the non-performing segment of the market as banks in EU countries accelerated their disposal of unpaid loans (or NPLs) encouraged by regulatory developments. EU 28 country performance A comparison of the 28 EU Member States and their individual performance against each indicator was conducted – the results can be found on page 10 of the report. Among the key findings: The UK is leading the EU with regards to the provision of new bond or equity financing for non-financial corporations (NFCs) with 26% of new funding derived from markets. The Netherlands and France follow closely with market instruments providing 18% of total new finance in both jurisdictions. Together the UK, France and the Netherlands account for 49% of total new funding for NFCs raised from markets in 2018. Only three countries, Croatia, Cyprus and Slovenia did not tap the market for NFC funding at all in 2018. The Netherlands, the UK and Denmark lead among EU countries in the amount of household savings invested in market instruments, due to greater private pension coverage. All countries except for Cyprus and Greece increased in 2018 the amount of savings in the form of cash and deposits. Ireland, Italy, Portugal, Cyprus and Spain (high-NPL countries) are in the top ten EU nations in the loan transfer index in 2018, as banks continue to dispose of distressed assets through markets. The UK leads by a large margin in the EU in its capacity to facilitate FinTech innovation due to the regulatory environment and deep funding pools. Sweden, Luxembourg and Lithuania follow the UK among the EU countries with the most suitable FinTech ecosystems. Belgium, the Netherlands and Sweden are the leading EU nations in sustainable finance with over 7% of bonds issued in 2018 classified as sustainable. 21% of Lithuania’s bonds issued in 2018 were labelled sustainable, which is just over double the percentage of 2017- however this reflects three bonds issued during 2018 (and one in 2017). Ireland leads by availability of risk capital for SMEs as a percentage of total SME finance, with a prominent participation of venture capital investment and private equity growth funds. Estonia ranks second in the EU due to significant business angel investment as a percentage of risk capital and bank lending. Luxembourg, the UK and Estonia rank as the most interconnected capital markets with the rest of the EU. Luxembourg’s lead is due to its fund and bond issues held within the EU. The UK, Luxembourg and Cyprus are the most globally interconnected European capital markets. The UK has a prominent participation at intermediating global FX and interest rate derivative transactions. In Cyprus, global connectivity is driven by the large portion of Cypriot equity and fund shares held outside the EU. Estonia and the Czech Republic are the deepest markets in the CEE region. In 2018, Estonia issued 10% of high yield bonds and 6% of investment grade bonds in CEE, while representing 2% of the regions GDP. 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 (ACC, EFAMA), crowdfunding (ECN), retail and institutional investors (European Investors), stock exchanges (FESE), venture capital and private equity (Invest Europe), and pension funds (Pensions Europe). – Ends –
Rebecca Hansford
AFME appoints new CEO
17 Sep 2019
The Association for Financial Markets in Europe (AFME) has announced today that it has appointed Adam Farkas to succeed long-standing Chief Executive, Simon Lewis. Mr Farkas, 51, is currently Executive Director of the Paris-based European Banking Authority (EBA), one of the three European Supervisory Authorities. He has held this post since 2011. In this role he has been responsible for the day-to-day running of the 200-person organisation. Prior to that he was the Chairman of the Hungarian Financial Supervisory Authority from 2009-2010, and also held various senior central banking and private sector positions between 1997-2009. Commenting on the appointment, AFME Chairman, Michael Cole-Fontayn, said: “I am delighted that we have appointed someone of Adam’s stature and experience. We carried out an extensive search of the pan-European market and Adam was clearly the outstandingly qualified candidate. His combination of leadership, technical and communications skills are an ideal combination for AFME and we look forward to welcoming him to our Board, as CEO.” He continued: “I would like to take the opportunity to thank Simon for all he has achieved during his nine years as AFME’s founding Chief Executive. In that time, he has overseen the development of AFME into a truly pan-European trade group with 80 people based in offices in London, Brussels and Frankfurt.” Commenting, Simon Lewis said: “I am delighted to hand over the reins to Adam. He is widely respected internationally, with the right experience and personal style and I am sure he will be a fine leader of AFME in the next stage of its development. It has been a great privilege to lead AFME and we mark our tenth anniversary this autumn with a real sense of achievement.” Commenting on his appointment, Adam Farkas said: “I am honoured and delighted to have been selected by AFME to take over from Simon and lead the organisation in the coming years. I look forward to continuing AFME's work towards a well-functioning and truly integrated European financial market." Mr Farkas will take up his new role on 1 February 2020. -ENDS-
Rebecca Hansford
AFME says potential for green securitisation is huge
11 Sep 2019
AFME has today published a new paper outlining the key factors needed to boost the growth of a green securitisation market in Europe. While demand for green securitisation bonds is still relatively low, many institutional investors have increased their commitment to investing in green assets and AFME members are also seeing an increasing number of queries around green securitisations. AFME therefore expects this market to grow considerably in the near term. Anna Bak, Associate Director of Securitisation at AFME, said: “There is huge potential for green securitisation to help expand environmentally sustainable investments in the short term. Green securitisation could play an important role in helping to achieve the EU’s 2030 climate and energy targets by financing deals and investment in low-carbon assets, which would help to close the investment gap estimated at EUR 180 billion per year. However, there is still more work to do to help make this market more attractive and user-friendly for investors.” According to AFME’s paper, the following factors will be key to the future growth of the green securitisation market: • Clear definition A simple and clear definition of green securitisation will help to encourage the market to develop more quickly. More work is also needed on more systematic reporting and the tracking of underlying data to make green securitisation more tangible for investors. • More political support and regulatory and financial incentives The introduction of regulatory and other initiatives will be fundamental to support the growth of the green securitisation market. For example, the introduction of improved regulatory capital treatment for Green Securitised Bonds or tax incentives (at national level) for investing in green securitisations would help to promote green securitisation to all securitisation investors, not only those with a green mandate. • Establishing green eligibility criteria Green securitisation transactions will need to contain green eligibility criteria in order to police the green credentials of the underlying collateral upfront to ensure investments are genuinely sustainable and to avoid “greenwash”. • Considering the evolution of green technology over time As standards evolve over time a transaction originally considered to be green could lose its green status, which would impact pricing and liquidity in the secondary market. Ongoing reporting and transparency where standards have changed on legacy transactions will therefore be important.Therefore, any regulatory capital or similar incentives introduced for green securitisations should include grandfathering for legacy transactions that have ceased to be considered green over time as a result of the evolution of technology to mitigate any sudden detrimental impact on pricing and liquidity in the secondary market. You can read the paper here
Rebecca Hansford
AFME recommends key priorities for the next EU legislative cycle
11 Jul 2019
Following the start of the new European Parliament term and nominations for new leadership posts in the EU institutions, AFME has today published two new papers which highlight the Association’s strategic priorities for a strong EU financial sector agenda. Simon Lewis, Chief Executive of AFME, said: “In the next EU legislative cycle, it is important that policy makers pursue ambitious policies that promote sustainable growth and competitiveness, as well as addressing barriers to capital market integration in Europe. Key to this will be the completion of the Capital Markets Union project. Today we have set out the key priorities our members think should be included in the next EU legislative agenda.” The first publication, “Finance for Europe – Building competitive, resilient and integrated financial markets - A financial services strategy for sustainable growth and competitiveness in 2019-2024” recommends that the EU prioritise a growth strategy focusing on promoting competitiveness, innovation and deeper integration while transitioning to a greener economy. This paper lays out priorities and recommendations under eight key areas: Improving efficiency and connectivity in securities markets by undertaking a recalibration of MiFID2/R, addressing impediments to an integrated post-trade system and improving the functioning of corporate bond markets; Expanding the size and capacity of EU capital markets with a particular focus on improving retail investor participation, improving conditions for accessing equity capital and reviewing the regulatory treatment of securitisation.; Promoting integration in EU financial markets and removing harmful fragmentation by developing an ambitious Capital Markets Union and completing the Banking Union; Achieving a sound implementation of Basel III based on a robust and cumulative impact assessment; Fostering a culture of integrity and effective conduct regulation by improving the tools and frameworks to fight against money laundering and reviewing the Market Abuse Regulation; Taking sustainable finance to the next level through the completion of the EU taxonomy and enhancing corporate reporting and disclosures; Building a competitive digital single market by developing a pan-EU cyber-crisis governance model, harnessing the potential of emerging technologies and ensuring a level playing field between all market participants; Facilitating global regulatory convergence and supervisory cooperation by leading global efforts to tackle harmful fragmentation and expanding focus on a well-functioning equivalence regime. The full priorities paper can be downloaded here. AFME has also published a second paper on “The European banking system: tackling the challenges, realising the opportunities - Achievements and next steps in the reform programme”. The report specifically looks at priorities for bank prudential and resolution regulation. The paper gives an overview of the steps taken so far towards making Europe’s banking system safer and better able to contribute to sustainable growth. It also identifies priority areas where further work is needed during the new legislative cycle. These include the need to remove fragmentation in European Banking markets and to complete the Banking Union in order for cross-border banks to manage their capital and liquidity at a consolidated level and to help address the lack of profitability and excess capacity. The paper emphasises the urgent need to build effective shock absorption mechanisms in the form of private risk sharing. This is where an ambitious Capital Markets Union is necessary to complement the Banking Union. The paper also provides some initial views on the upcoming banking reforms (CRD6/CRR3 package) expected in 2020. The banking regulation priorities paper can be downloaded here. - ENDS -
Rebecca Hansford
AFME and ELFA agree to end formal affiliation
26 Jun 2019
The Association for Financial Markets in Europe (AFME) and the European Leveraged Finance Association, formerly the European Leveraged Finance Alliance (ELFA) today announce that the two organisations have agreed to end their formal affiliation with effect from 1 July 2019. The mutual decision was taken by the two groups following the conclusion of a 6-month trial period, so that both organisations can continue serving the interests of their respective members, while still working together for the benefit of the whole market. Sabrina Fox, Executive Advisor to ELFA, said: “ELFA is grateful to AFME for their support over the last six months. The platform they provided to us was essential to our success and momentum. As trade associations we represent different constituencies with unique perspectives. Working together as independent entities will enhance our ability to represent our respective members, and to collaborate with each other. Our intention is to continue to work closely with AFME as both parties act to support the growth and sustainability of the European leveraged finance market.” Gary Simmons, Managing Director of AFME’s High Yield Division, said: “This was a mutual decision taken by both organisations in order for us to best represent the interests of our respective members. The high yield investor community is an important part of the European high yield industry and we value its contribution to maintaining a healthy and viable market. AFME and ELFA will continue to work informally together across various policy issues, including joint initiatives and continued communication, to promote high yield market growth and efficiency.” -ENDS-
Rebecca Hansford
AFME calls for better integration of EU Banking and Capital Markets
23 May 2019
On the occasion of AFME’s inaugural Supervision & Integration conference which took place in Frankfurt on 23 May 2019, and in response to keynote speeches by Luis de Guindos, ECB Vice-President, and Dr Jörg Kukies, State Secretary of the German Ministry of Finance, Michael Cole-Fontayn, Chairman of AFME, said: “The European banking market continues to suffer from fragmentation across national lines. While the system is safer and more resolvable than 10 years ago, Banking Union is not yet delivering its expected integration benefits and it is negatively affecting cross-border banking services and cross-border M&A, which remain limited in the euro area.” “A continued lack of trust by Member States in each others’ facilitation of risk sharing also lies at the root of this. This is resulting in barriers to the free flow of capital and liquidity across the EU, preventing the diversification of risk and, perversely, running the risk of introducingsystemic fragilities.” “We need to unlock the full benefits of Banking Union. In order to do so, we must move forward with implementing the roadmap for a system-wide European Deposit Insurance Scheme (EDIS). This also requires the huge progress already achieved - through stronger prudential requirements and more effective supervision and resolution – to be acknowledged.” “More also needs to be done to deepen capital markets in the EU by continuing to implement the Capital Markets Union (CMU) project. Capital markets are an important source of private risk sharing across borders, which contribute to smoothing economic shocks and reduce the need for public risk sharing. By focusing on building more integrated banking and capital markets in the EU, this will create a financing market, which will, in turn, power EU investment, innovation and growth in the longer term.” In a new short paper, AFME makes further recommendations on how to achieve a truly integrated European financial market, or Financing Union. The paper is available online here. -ENDS-
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Rebecca Hansford

Head of Media Relations

+44 (0)20 3828 2693