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AFME calls for greater supervisory convergence in European crypto-asset regulation
13 Nov 2019
The Association for Financial Markets in Europe (AFME) has today published a new paper setting out fiverecommendations to deliver supervisory convergence on the regulation of crypto-assets in Europe. The paper’s recommendations are intended to encourage collaboration between regulators in Europe and work towards a common approach to the regulation and development of crypto-assets in financial services. James Kemp, Managing Director, Head of Technology and Operations at AFME, said: “There has been a rapid rise in the development of crypto-assets, which could offer significant benefits for wholesale markets. However, to realise those benefits, it is increasingly important that crypto-asset regulation is coordinated at the regional and global level to foster innovation, while promoting financial stability and ensuring a level playing field. This should start with forming a common understanding of the various crypto-asset terms and activities in financial services”. In this paper, AFME provides an overview of the crypto-asset taxonomies and regulatory approaches in use by a sample of National Competent Authorities across Europe, outlining the areas where divergence in regulation exists. The paper finds that while there is some convergence on the methods used to classify different types of crypto-assets, there is significant divergence in the methods used to regulate crypto-assets. This creates uncertainty for market participants, which limits innovation. Europe has the potential to become a global leader in crypto-assets and to facilitate the emergence of safe and innovative products and services at scale. In order to reduce fragmentation and deliver supervisory convergence in the regulation of crypto-assets in Europe, AFME proposes the following five recommendations for regulators to consider: Establish a pan-European crypto-asset taxonomy; Provide clear expectations for market participants on the process for issuing crypto-assets; Apply activities-based and technology agnostic regulation; Apply existing regulation for regulated activities, with any necessary amendments if required; Prioritise convergence of regulatory frameworks with other global and regional initiatives. The paper has been developed with expertise from AFME member firms to provide a further assessment of the crypto-asset regulatory landscape in Europe. It is available to download on the AFME website. -ENDS-
Rebecca Hansford
Trade Organisations call for Extension of Temporary Equivalence and Recognition of UK CCPs
12 Nov 2019
Today, 14 financial services trade associations wrote to European Commission Vice President, Valdis Dombrovskis to highlight the need for an urgent extension to the temporary equivalence determination for UK central counterparties (CCPs). Without such an extension, EU clearing members would not be able to continue as direct members of UK CCPs in the event of a no-deal Brexit, and EU counterparties would not be able to clear derivatives subject to the clearing obligation on those CCPs. The current temporary equivalence expires on 30 March 2020. The 14 trade associations signing the letter are AFME, FIA, ISDA, FIA EPTA, EFET, DAI, Eurelectric, SSDA, Assosim, AIMA, MFA, EFAMA, SIFMA AMG and EBF. The signatories of today’s letter argue that without a seamless ability to continue to clear transactions across borders in the event of a ‘no-deal’, Brexit will have a significant impact on companies and on the safety and soundness of the financial system. As argued in the letter: “It is important for the purpose of maintaining financial stability in the event of a "No Deal" Brexit for the Commission to provide this certainty in a timely fashion. It is also an important bridging measure to ensure that the transitional, anti-disruption protections for EU counterparties that have been negotiated under EMIR 2.2 will be available in the event that the UK is not ultimately found to be equivalent or in the event that UK CCPs are not able to obtain recognition (although we emphasise that we consider that it is of vital importance for financial stability that the necessary arrangements are put in place to ensure that UK CCPs are able to obtain recognition under EMIR 2.2).” The Associations request that the Commission amend the Implementing Decision on UK CCPs to extend the temporary equivalence until the date 18 months after entry into force of the relevant Commission delegated acts under EMIR 2.2, plus an additional three month period to allow UK CCPs to serve termination notices to EU clearing members in the event that their recognition is withdrawn following ESMA's review.” The letter can be downloaded here. -ENDS-
Rebecca Hansford
Traders call for shorter EU market hours to improve diversity & market efficiency
7 Nov 2019
Traders in the investment management and banking industries are calling on the London Stock Exchange (LSE) and other European trading venues to review trading hours across Europe in a bid to improve culture, diversity and wellbeing on trading floors, and create more efficient markets. In a joint letter to the LSE and other European trading venues, the Association for Financial Markets in Europe (AFME) and the Investment Association (IA) have today requested a review into equity market opening hours across Europe, with a view to shorten operating hours from 8am - 4.30pm, to 9am - 4pm GMT (9am - 5.30pm, to 10am - 5pm CET). A reduction of 90 minutes in European markets would create more efficient markets, benefiting savers and investors. Currently, the first hour of trading often attracts little liquidity and subsequently is a more costly time to trade, while the final hour attracts around 35% of total daily volume. Shortening the hours would concentrate liquidity leading to more consistent trading costs and provide greater time for traders and the market to digest corporate announcements. The current opening hours for major trading venues in Europe are some of the longest in the world at 8.5 hours, when compared to other global markets, such as the US (6.5 hours) and Asia (6 hours), with traders expected to start their day long before markets open and close. This long hours culture impacts on traders’ mental health and wellbeing. It has also been identified as a key obstacle in recruiting and retaining more diverse talent, in particular for those with family or caring commitments. It is hoped the proposed shortened day could also have an impact on workplace culture by improving work-life balance, and providing a necessary step towards creating more diverse and inclusive trading floors. April Day, Managing Director, Head of Equities at AFME, said: “AFME and the IA are currently in discussions with the major European cash equity exchanges to explore a reduction to trading hours. A shorter trading day would not only improve market structure but would also go a long way towards building a more diverse trading floor and fostering better mental health. Equities trading risks lagging behind a wider financial services industry push for more diversity and inclusion unless the long trading day is tackled by an industry-wide approach.” Galina Dimitrova, Director of Capital Markets at the Investment Association, said: “From boardrooms to trading floors, we need to improve the ways our businesses work to create more inclusive environments where all employees can thrive. Shortening trading hours, enabling a better work-life balance could bring significant benefits to City workers and firms, who will be able to attract a broader diversity of talent. We have heard many deeply moving stories of traders’ mental health and personal life being impacted by their working hours. Whilst it is no silver bullet, we hope this European-wide review could start to lead to a step change in more efficient markets to the benefit of savers and those who operate them.” You can download the supporting proposal paper here ENDS -
Rebecca Hansford
AFME publishes 14 industry recommendations for supporting the adoption of public cloud in capital markets
5 Nov 2019
The Association for Financial Markets in Europe (AFME) has today published a new paper setting out 14 recommendations to help realise the full potential of public cloud computing across the capital markets industry. The recommendations for banks, cloud providers, regulators, and the industry as a whole aim to increase the transparency and collaboration required to build further confidence, trust and capability in public cloud. James Kemp, Managing Director, Head of Technology and Operations at AFME, said: “The use of public cloud in financial services offers significant opportunities and benefits for all parties. However, to realise these and increase adoption it is vital that the whole industry, including banks, cloud providers and regulators, continue to collaborate. This includes ensuring the knowledge, skills, security and risks are appropriately assessed and identified throughout this long-term transformation.” Public cloud is expected to expand significantly across all areas of the capital markets value chain, with AFME members identifying the key benefits being greater business agility and innovation, improved cost management and efficiency, and enhanced client experience and service offerings. However, the paper outlines several barriers to this adoption at present, including legacy IT complexity, security implications, regulatory concerns, a lack of standardisation in cloud provider services, and long-term considerations on concentration risk, among others. Given these barriers, the paper finds that banks are still at an early stage of public cloud adoption. Over two-thirds of AFME members involved in discussions estimated that only 1 - 10% of their bank’s current workload was using some level of public cloud today. Public cloud adoption is currently being used in some of the following ways: capacity bursting (e.g. supporting existing resource intensive processes such as trade processing); running sophisticated data analytics (e.g. detecting market abuse); supporting innovation projects (e.g. quickly standing up a new project development and test environment), and improving resiliency (e.g. backup and archiving of data). In order to support continued public cloud adoption, AFME proposes 14 recommendations for banks, cloud providers, regulators, and the industry as a whole, with 4 key themes emerging: 1. Banks should design their public cloud strategy with a clear and realistic target operating model, review and reprioritise accordingly, and ensure executive sponsorship throughout adoption. 2. Cloud providers must continue to engage with banks and regulators to support building the capabilities and assurances required (e.g. legal, regulatory, privacy), and support increased standardisation that can also satisfy regulatory requirements. 3. Regulators can support greater regional and global harmonisation, in respect to requirements for both public cloud adoption and supervisory practices, that will reduce the complexity for banks adoption. 4. The industry as whole must continue to share knowledge, best practice, and promote standardisation and consistency, in how public cloud is adopted. The paper has been developed, with expertise from AFME Member firms, and Premium Associate Members, to provide further assessment of public cloud adoption in capital markets. -ENDS-
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

Head of Media Relations

+44 (0)20 3828 2693