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EU banking system remains resilient in face of harshest ever stress test
29 Jul 2021
Following the publication of the results of the EBA’s 2021 stress test, Michael Lever, Head of Prudential Regulation at the Association for Financial Markets in Europe (AFME), said: “AFME is pleased to note that the European banking system remains well capitalised even after taking account of the impact from extremely harsh assumptions which formed the basis of the test.” “The EBA’s stress test adverse scenario was based on a narrative of an extended Covid-19 outturn in a “lower for longer” interest rate environment in which negative confidence shocks would prolong economic contraction. The assumptions used for economic growth, unemployment and market stress were substantially more severe than those applied in previous stress exercises and have become far less plausible in the light of a stronger than anticipated recovery from Covid-19, subsequent upgrades to economic forecasts and resilient market performances. While it is acknowledged that the improved economic outlook has benefitted from substantial fiscal and monetary support from governments and central banks, it is nevertheless imperative that when reviewing the stress test results that this “distance to reality” is recognised and taken into account in supervisory actions particularly in relation to Pillar 2 guidance and when evaluating distribution policies.” “AFME and its members continue to support a robust European stress testing framework to determine the resilience of banks and the financial system against long tail risks and look forward to contributing to its further development.” – Ends –
Rebecca Hansford
Securitisation could be a game-changer for the EU’s post-pandemic recovery - provided the regulatory review gets it right
22 Jul 2021
In response to the publication today of the European Commission’s consultation on the Article 46 review of the Securitisation Regulation, Richard Hopkin, Head of Fixed Income at AFME, said: “Today’s consultation is an important step in the review of the securitisation framework in order to improve the functioning of this vital funding and capital management tool in Europe. For the last 13 years, securitisation placed issuance has struggled to exceed much more than around EUR100 billion a year – much less than in the United States. The simple, transparent and standardised (STS) securitisation framework – a global “gold standard” - has struggled to attract new issuers and investors due to overly complex compliance requirements and only very limited recognition provided in associated capital and liquidity regulations.” “Securitisation can do so much more, so this needs to change - particularly in light of the Covid-19 pandemic. Securitisation is uniquely placed to help address some of long-term economic damage caused by the pandemic through its ability to transfer risk while still enabling banks to continue to lend. Furthermore, if well supported, ESG and green securitisation can also make an important contribution to funding the transition to a more sustainable economy. With EUR 603 million of green securitisation issued as at FY 2020, the market has the potential to grow with a well-designed regulatory environment.” “The review therefore needs to be ambitious and focus on introducing more proportionality and risk-sensitivity in the Securitisation Regulation, as well as in the treatment of securitisation in sectoral regulations governing bank capital and liquidity (CRR), insurance company capital (Solvency 2) and other areas.”
Industry calls for clarity on mandatory buy-in rules
15 Jul 2021
On 14 July 2021, sixteen trade associations* representing buy-side, sell-side and market infrastructures, wrote to ESMA and the European Commission regarding the timeline for implementation of the mandatory buy-in rules as part of the Central Securities Depositories Regulation (CSDR) Settlement Discipline Regime. The Joint Associations welcome the Report from the Commission on the CSDR Review published in July 2021 and fully support the Commission’s intention to consider amendments to the mandatory buy-in regime, subject to an impact assessment. In light of this, the Joint Associations request ESMA and the Commission to take action to ensure that the mandatory buy-in rules for non-CCP transactions are not subject to application on 1 February 2022, when the relevant RTS is currently set to enter into force, and to provide clarity to market participants on the matter on an urgent basis. The Joint Associations remain committed to further improving settlement efficiency in Europe’s capital markets. – Ends – *The sixteen trade associations include: the Association for Financial Markets in Europe (AFME), L’Association Française des Professionnels des Titres (AFTI), the Association of Global Custodians European Focus Committee, the Alternative Investment Management Association (AIMA), l’Associazione Italiana Intermediari dei Mercati Finanziari (Assosim) the, European Association of Co-operative Banks (EACB), the European Association of Public Banks (EAPB), the European Banking Federation (EBF), the Electronic Debt Markets Association(EDMA), the European Fund and Asset Management Association (EFAMA), the European Venues and Intermediaries Association (EVIA), the Futures Industry Association (FIA), ICI Global, the International Capital Markets Association (ICMA), the International Swaps and Derivatives Association (ISDA), and the International Securities Lending Association (ISLA).
Rebecca Hansford
Next stage of sustainable finance agenda critical to meeting EU sustainability objectives, says AFME
6 Jul 2021
AFME has today welcomed the publication by the European Commission of the EU Renewed Sustainable Finance strategy. Adam Farkas, Chief Executive of AFME, said: “Europe’s leadership on sustainable finance has given rise to several ambitious and comprehensive regulatory proposals. Now, the next stages of the sustainable finance agenda will be critical to mobilise private investment on the scale needed to meet the EU’s sustainability objectives. “A broader, more flexible approach to classifying transition activities would go a long way to helping to accelerate Europe’s pathway to achieving net-zero carbon emissions by 2050. The recognition in the Renewed Strategy that the current EU Taxonomy framework could better recognise investments for intermediary steps on the pathway towards sustainability is extremely helpful. A robust transition framework should include both activities and entities that are already low carbon, but also be forward-looking and include firms, their assets, and their activities that demonstrate the commitment and potential for transition within scientifically determined thresholds. “Capital markets will need to play a central role in the green transition. We estimate that 35% of the funding needed to meet the Paris Agreement is required from equity, alongside 44% from loans and 21% in bonds. While the markets for green bonds have seen significant growth in Europe, climate finance needs to scale across all asset classes. It is important to take a holistic approach that fosters all products and asset classes – including equity and securitisation – that can contribute to mobilising capital resources towards the transition. “AFME will continue to support a risk sensitive approach to the integration of ESG factors into prudential regulation and we look forward to the work programme in this area. Any specific prudential treatment distinguishing between ‘green’ or ‘brown’ assets needs to be consistent with the principles of prudential regulation. This should be done in a dynamic, forward-looking and risk-oriented manner which is based on experience and scientific data, and agreed at an international level as far as possible. “We welcome the commitment for the EU to continue to cooperate with its partners in international fora to agree on common objectives and principles for taxonomies. The development of regional taxonomies should follow a set of common, globally consistent principles and, as such, the evolution of the EU Taxonomy should take international taxonomy developments into account. International regulatory convergence in ESG reporting is particularly important in the further elaboration of the European reporting framework.” – Ends –
AFME appoints Thalia Chryssikou as new Chair of the Board
23 Jun 2021
The Association for Financial Markets in Europe (AFME) has today announced that, Thalia Chryssikou, Head of Global Sales Strats & Structuring at Goldman Sachs, has been appointed as Chair of the Board. She takes over from Michael Cole-Fontayn who has been a member of the AFME Board since 2011 and served as Chair between September 2015 and June 2021. Adam Farkas, AFME Chief Executive, said: “We are delighted to welcome Thalia as AFME’s new Chair. Thalia brings a wealth of knowledge from her over 20-year career in financial services and technology at Goldman Sachs that equips her to lead the AFME Board as we emerge from the Covid-19 pandemic. She is also a passionate advocate of supporting female talent which is a priority for AFME and the financial services industry as a whole.” “I would also like to take this opportunity to thank Michael for his service and dedication to AFME. Michael is a strong supporter of Europe’s capital markets, having passionately promoted the “E” in AFME during his decade on the AFME Board. Under Michael’s Chairmanship, AFME has established a reputation as an expert and credible voice for Europe's wholesale financial markets across a broad range of regulatory and capital markets issues. He has been a very engaged and committed Chair and we wish him well in his next endeavour as an independent Director on the Board of JPMorgan Securities PLC.” ThaliaChryssikousaid: “I am delighted and honoured to be taking up the role of Chair at AFME at such a pivotal time. The enormous potential for transformation of the European economy through digitalisation and decarbonisation will require unprecedented levels of investment and finance. AFME has a key role to play in helping to shape European financial regulation to promote deep and integrated capital markets to serve the needs of companies and investors in this task. I look forward to acting on behalf of all our members to enable our financial markets to rise to this challenge.” Michael Cole-Fontayn said: “It has been a true pleasure and honour to serve the AFME Board over the last six years. During this time, Europe’s capital markets have faced unprecedented challenges from Brexit and the Covid-19 pandemic, and I am very proud of the work AFME has done in informing the policy debate around the future of Europe’s capital markets, as well as working with regulators and the industry in support of the growth agenda.” – Ends –
Wholesale markets banks and BCG develop first global principles for climate finance taxonomies – a key enabler for transition finance success
16 Jun 2021
A new set of principles published today by the Global Financial Markets Association (GFMA) and Boston Consulting Group (BCG) provides, for the first time, a global, actionable set of principles that are recommended to be considered by officials and the private sector when developing regional and sector-specific Climate Finance taxonomies. “Global Guiding Principles for Developing Climate Finance Taxonomies – A Key Enabler for Transition Finance” acknowledges that to meet the $3–5 trillion+ per year in global investment needed to decarbonize the global economy, a necessary shift of the Climate Finance Market Structure must focus more on the need for more transition finance, including “green” equity to support low-emissions projects, recognizing that 35% of the funding needed to meet the Paris 2C requirements is required from equity, alongside 44% from loans and 21% in bonds. There is recognition by G20, G7 and local economies now more than ever that climate finance market structure must grow at an unprecedented scale, speed, and geographic scope to meet the investment needs to transition to a low carbon economy for the benefit of economic growth and the viability of communities around the world. Collectively all market participants must strive towards the development of consistent, comparable, and reliable taxonomies to enable capital markets financing to be mobilized at the scale and pace necessary for an effective transition. Steve Ashley, Nomura Head of Wholesale Division and Chairman of GFMA, said: “The banking and capital markets sector recognises the importance of sound taxonomies that support change and transition. Here we offer five principles to act as a guide to help unlock the potential and encourage investment in climate finance.” All existing and new taxonomies should be assessed against five global principles: Climate Finance taxonomies should be broadened beyond use of proceeds structures (e.g. green bonds) to capture entity-level activities and all eligible sources of capital. Climate Finance taxonomies should be objective in nature, supported by clearly defined metrics and thresholds aligned to theParis Agreement, and science-based targets. Climate Finance taxonomies should have a consistent set of principles and definitions, but provide flexibility for regional and temporal variation to align with differences in transition pathways. Climate Finance metrics should be defined and applied to sectors using science-based targets, balancing ease of use with transparency and robustness to both assess climate impact and support third-party verification. Climate Finance taxonomies should be based on a governance process that is robust, inclusive, and transparent, and has the flexibility for continued evolution. Kenneth E. Bentsen, Jr., CEO of GFMA and president and CEO of SIFMA, said: “Debt instruments alone, such as green bonds, cannot meet the $150 trillion required to meet the 2050 goals stipulated by the Paris agreement nor the more recent G7 ministers’ commitment to the 30x30 initiative. Equity finance plays a critical role in enabling a corporation’s ability to mobilize capital toward transition pathways. To unlock these sources of capital, we need a broader definition of climate finance that captures equity financing and working capital, which is not easily linked to a specific underlying economic activity. However, to avoid greenwashing, it is important to have consensus on global principles, which leads to increased confidence in monitoring how cross-border Climate Finance taxonomies are designed and capital may be invested. In the report we offer solutions to broaden the set of eligible sources of capital in Climate Finance taxonomies, while identifying global guiding principles that support preserving the integrity and accountability in capital markets.” Developing effective Climate Finance taxonomies are contingent on regional and sector-specific science-based transition pathways that clearly outline the technology paths and interim and final targets. Science-based targets (SBT) at the regional and/or sector level, rather than overarching global targets, should be used to inform threshold calibration. This will allow for regional and temporal variation in the application of taxonomies, without compromising global consistency and ease of use by international stakeholders, mitigating the risk of transition activities from being considered climate-aligned and isolating hard-to-abate sectors from investment. The exclusion of transition and enabling activities from scope of Climate Finance taxonomies will only result in a “wait and see” approach in the real economy—and corporates may also defer investment decisions until there is significant advancement in underlying technology for an activity. SBT transition pathways also reinforce the importance of the role of equity eligibility, as equity and other sources of patient capital are often needed to fund longer-term investment in R&D in low-GHG technologies and provide sufficient levels of loss absorbency to support the raising of debt finance. Roy Choudhury, Managing Director and Partner of BCG said: “The report acknowledges that there is no ‘silver bullet’ for the creation of a global taxonomy. A successful framework is one that recognizes regional and sector-specificities. With this report, our aim is therefore to build consensus on global guiding principles for developing well founded taxonomies that underpin investor confidence as different jurisdictions (government-sponsored), industry associations, and individual participants create their own bespoke Climate Finance taxonomies to enable financing transition pathways. The five principles are by design high level and not prescriptive to allow for Climate Finance taxonomies to be based on regional or nationally defined contributions, climate targets and policies, and sector-specific transition pathways. The principles are designed to be foundational in the development of Climate Finance taxonomies by identifying key features underpinning each principle are considered.” Allison Parent, Executive Director of GFMA, said: “Globally harmonized, objective, science-based Climate Finance taxonomies are a key step to enabling the unprecedented scale of transition finance needed. Broadening the definition of Climate Finance taxonomies to capture the entity-level activities and all eligible sources of capital is critical to mobilizing equity financing and working capital that is not easily linked to a specific underlying economic activity. We set out these global principles and definitions to help spur global policymakers, standard setters, and market participants to start using a minimum set of global guiding principles and consistent definitions to underpin the development of Climate Finance taxonomies across regions. This will facilitate the cross border flow of financing to hard-to-abate sectors as well as global and diversified entities that operate across multiple countries, sectors, and sub-sectors.” – Ends – Background: The “Global Guiding Principles for Developing Climate Finance Taxonomies –A Key Enabler for Transition Finance” is a follow-up to one of the recommendations in GFMA/BCG report last December,Climate Finance Markets and the Real Economy, Sizing the Global Need and Defining Market Structure to Mobilize Capital. Similarly, the scope of this paper is limited to Climate Finance taxonomies and does not cover broader environmental, social, and governance (ESG) taxonomies. Climate Finance taxonomies help enable financing, providing guidelines for investors and credit institutions on how “climate-aligned” a given corporate is at the entity level, or the alignment of specific activities undertaken by an entity to science-based pathways. Taxonomies should not be used as proxy for physical, transitional, or prudential risk assessment of financial institutions. A taxonomy captures only a snapshot of a corporate’s activities; therefore, to comprehensively understand a corporate through the lens of Climate Finance, a taxonomy should be used in conjunction with forward-looking decision-relevant metrics, enabled by mandatory disclosures. About GFMA GFMA represents the common interests of the world’s leading financial and capital market participants to provide a collective voice on matters that support global capital markets. It also advocates on policies to address risks that have no borders, regional market developments that impact global capital markets, and policies that promote efficient cross-border capital flows to end users. GFMA efficiently connects savers and borrowers, thereby benefiting broader global economic growth. The Association for Financial Markets in Europe (AFME) located in London, Brussels, and Frankfurt; the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong; and the Securities Industry and Financial Markets Association (SIFMA) in New York and Washington are, respectively, the European, Asian, and North American members of GFMA. GFMA Press Contacts AFME Rebecca Hansford Head of Media Relations [email protected] +44 (0)20 3828 2693 ASIFMA Corliss Ruggles Head of Communications [email protected] 852 9359 6996 SIFMA Katrina Cavalli Managing Director, Public Affairs [email protected] 212.313.1181
Rebecca Hansford
AFME calls for renewed efforts towards Banking Union and Capital Markets Union to deepen Europe’s financial integration
15 Jun 2021
AFME’s flagship Annual European Financial Integration conference, organised jointly with OMFIF, took place today, 2 days before the Eurogroup’s next meeting on 17 June. At this meeting, Eurozone finance ministers are expected to review and assess recent progress of the discussions on Banking Union. A host of senior officials and leading industry participants at today’s conference examined the impact of the pandemic on European financial integration. The discussions highlighted the need for the EU to pursue efforts towards completing its Banking and Capital Markets Union projects to ensure the financial system is well equipped to support post-pandemic growth, including an accelerated transformation towards a more digital and sustainable economy. Following the conference, Adam Farkas, CEO of AFME, said: “The banking system plays a key role in Europe’s recovery from the pandemic and underpinning future growth. Fostering a highly integrated, resilient, competitive and profitable European banking sector is needed to support growth and ensure long-term stability. The completion of Banking Union must therefore remain a strategic priority.” “Let’s not forget that the other key component of deepening Europe’s financial integration is progress on the Capital Markets Union. We are concerned there may be waning momentum and ambition on this project and some of its main deliverables - for example, in areas such as bolstering equity finance, scaling up securitisation and converging legal frameworks. If we take a back seat on these long-term projects, Europe’s economic recovery will be slower in the face of persistent fragmentation.” The full conference agenda can be found here. – Ends –
Report confirms overwhelming majority of equity trading in Europe takes place on venues – AFME warns that further concentration could undermine liquidity, investor choice and increase the overall cost of trading
1 Jun 2021
A new report published today by Oxera and commissioned by the Association for Financial Markets in Europe (AFME), provides evidence that the majority of equity trading in Europe (83%) takes place on venues[i]. A much smaller share (17%) takes place off-venue on alternative trading mechanisms known as systematic internalisers[ii] (SIs) and over the counter (OTC). This in-depth analysis counters claims that SIs and OTC transactions are disproportionately dominating the European equities landscape. These misperceptions have been based on raw trading data compiled by ESMA from national authorities and is not granular enough to distinguish between different trading modalities. As such, it does not provide an accurate picture of the equities trading landscape in the EU. Adam Farkas, Chief Executive of AFME, said: “This latest analysis from Oxera highlights how existing raw equity trading data reported to ESMA can inaccurately represent the trading landscape and to influence policymaking with the risk of perpetuating the dominance of exchanges in equity trading. This is cause for concern because an overly concentrated trading landscape hampers competition, investor choice and keeps costs of trading high. Ensuring sufficient diversity of trading is to the benefit of individuals’ pensions and savings, whether it is via their direct participation in markets, or via the institutional investors which represent them. A lack of competition in trading on the EU’s secondary markets may also be holding back the growth of primary markets which are underdeveloped compared to the size of the EU economy.” “AFME is therefore calling for improvements to regulatory data definitions and collection processes to be prioritised in the upcoming MiFIR Review so that policymakers have an accurate picture of EU market developments and can compare them internationally. The Review should not privilege any particular trading mechanism - otherwise we risk running counter to its objectives of improving market liquidity and investor outcomes.” Reinder Van Dijk, Partner at Oxera, said “When considering the European equity trading and liquidity landscape, policymakers and market practitioners may have different questions depending on their perspectives of interest. A significant volume of OTC and SI reported transactions are technical in nature. While technical trades may be relevant from a supervisory and/or post-trading perspective, it is not informative to include them in an analysis of the trading and liquidity landscape. Oxera’s analysis of the trading and liquidity landscape in this report applies filters to the full universe of reported equity transactions to distinguish true economic trading activity from the reporting of technical transactions. Although Oxera’s report provides more clarity, further work is required to obtain a precise view of the equity trading and liquidity landscape in Europe.” – Ends – [i] Trading venues are Regulated Markets and Multilateral Trading Facilities (MTFs). Trading mechanisms that take place under the rules of a trading venue can be broken down into the categories: lit order book, auctions, dark venues, and off-book on-exchange. [ii] Systemic Internalisers are investment firms using their balance sheets to trade with clients at their own risk. By doing so, they play an important role allowing trading to still take place when other market participants are unable or unwilling to trade. Their trades are made visible to the rest of the market after execution to avoid market prices moving before the trade takes place, which would otherwise amplify the risk they take.
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Rebecca Hansford

Head of Media Relations

[email protected]