15 Dec 2015

A change of tone in 2015 and challenges ahead in the New Year

Simon Lewis, AFME Chief Executive, reflects on 2015 and the challenges that lie ahead for Europe's capital markets in 2016.

We moved on 2 November to new offices at Canary Wharf, after almost six years at St Michael’s House. The change has exceeded our expectations: we have more space and light and after a few weeks we are well-established in our new premises.

Feedback from the many members who have visited the office has been very positive, and we look forward to welcoming many more of you here in the New Year. The improved office environment has been achieved at a significantly lower cost than our premises in George Yard in the City of London.

The move coincides almost exactly with our sixth anniversary. AFME came into being in the aftermath of the financial crisis and this is a good moment to take stock.

Europe’s wholesale banking industry recognised the need to speak with one, constructive voice to policy-makers. Since then, we have worked hard on a succession of dossiers, from CRDIV to BRRD and MiFID 2, Banking Union and more recently Bank Structural Reform, Capital Markets Union (CMU) and the UK’s Fair and Effective Markets Review.

Our mission has been to provide fact-based evidence to policy-makers to ensure that regulation is fair and consistent with the aim of creating deep, liquid and functioning capital markets for Europe.

It would be premature to say that after six years the job is done and that we are poised to return to a "new normal". Banks are still making the headlines for the wrong reasons. It would be a bold claim that the industry is understood and appreciated by the population at large as much as by regulators and parliamentarians.

There is a change in tone, however, as we saw, in the UK, when Mark Carney, Governor of the Bank of England, spelt out that there will be no Basel IV: no further wave of transformational prudential regulation. Banks are much better capitalised than before the crisis, and this factor, together with reduced leverage and clear rules on resolution, means that the risk of banks failing and the public bearing the consequences, has considerably reduced.

The European Commission’s CMU project is unambiguously good news. There is at last an appreciation that healthy capital markets contribute to much needed jobs and growth. It will take more than one Commission term to implement the key measures, whether on securitisation or private placements and insolvency reform, but the direction of travel is clearly positive.

Sometimes, there are contradictions in policy: we think Europe’s proposed Bank Structural Reform is unnecessary, in the light of the significant reform of capital requirements and the resolution regime. Negotiations over the EU 11’s pointless and unworkable Financial Transactions Tax continue at a time when Europe needs to move on from FTT and focus efforts on the Commission's growth agenda.

And notwithstanding the absence of Basel IV, there are significant challenges ahead, not least the Fundamental Review of the Trading Book and the introduction of loss-absorbing capacity (TLAC and MREL).

For European financial markets, a major uncertainty comes from the possible exit of the UK from the EU following a referendum likely to be next year. Europe’s financial markets are very substantially concentrated in the UK, and decoupling of the UK would not advance the EU’s objective of building a Capital Markets Union.

With that thought, I extend to all members season’s greetings and best wishes for the New Year.