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AFME responds to UK Treasury Wholesale Markets Review
24 Sep 2021
The Association for Financial Markets in Europe (AFME) has today submitted its response to the UK Treasury Wholesale Markets Review Consultation. Adam Farkas, Chief Executive of AFME, said: “The UK Wholesale Markets Review is a key moment for the industry and policy makers to reflect on how well capital markets are functioning. “The Review is comprehensive and proposes a number of changes to existing MiFID II provisions. It is vital that any future changes to rules governing how financial markets operate continue to support the development of capital markets in Europe, ensuring that they remain open, competitive and diverse. “AFME’s members are global wholesale banks that support European clients internationally, therefore, it is a priority to ensure the continuity of cross-border services and to avoid market fragmentation at all costs.” Among some of the key points in AFME’s response are: Supporting the removal of the STO and DVC AFME supports the removal of both the Share Trading Obligation (STO) and the Double Volume Caps (DVC) because these rules have not resulted in positive outcomes for investors and instead have increased complexity in market structure. With respect to the DVC, European equity markets are alone in having a volume-based constraint on undisplayed liquidity. This makes them global outliers in placing unnecessary caps on this type of trading activity, rather than enabling better execution performance for end investors. Meanwhile, the STO has had the unintended consequence of restricting firms’ access to the most liquid markets, making the delivery of best outcomes for investors more challenging. AFME has long argued that this is a feature which can render markets less attractive as a place in which to invest or raise capital. AFME has consistently called for the removal of both the DVC and STO and therefore welcomes the UK Treasury’s proposal to remove them and strongly encourages the European Authorities to do the same. AFME supports the UK Treasury’s proposal to ensure that the price formation process will continue to be monitored by the FCA. Improving primary market communication to avoid market outages AFME supports HMT’s proposal to have an industry playbook for both venues and market participants to follow in the event of an outage. In its response, AFME has set out recommendation on the key components of a playbook, which include: Accurate and timely identification of outages by participants and trading venues. An orderly halt to trading on the affected venue, and redirection of trading to alternate venues. Reliable and standardised broadcast of details surrounding the outage, order status, planned resolution and re-opening by the trading venue. A minimum time between participants being notified of a venue re-opening and trading on that venue re-commencing. Orderly restart of the affected trading venue and resumption of its trading without disruption to continued trading on other venues. Use of the reference price waiver (RPW) HMT proposes enabling reference price systems to match orders at the mid-point within the current bid and offer of any UK or non-UK trading venue, rather than the price of the primary market that has been the status quo since MIFID was implemented. AFME believes that this approach ensures that the price being used will be a reflection of the best execution conditions based on the nature of the order. Additionally, AFME members believe that HMT’s proposal will lay the groundwork for a solution to primary market outages as it would facilitate market participants moving trading onto an alternative venue in the case of an outage on the primary market. Creation of a Consolidated Tape AFME members agree that the UK Government should take action to encourage the development of a Consolidated Tape (CT) for both equities and bonds.AFME believes that the provision of an appropriately constructed CT could democratise access for all investors, regardless of resources or sophistication, with a comprehensive and standardised view of the trading landscape. However, design of an appropriately constructed CT raises many challenges, which must be thoroughly thought through ahead of any regulation or guidance being drafted toensure that ahigh qualitydata source is built. Improving MIFIR’s reporting framework AFME has long advocated for a review of MIFIR’s reporting framework. The existing regime creates uncertainty about who should report the trade and can lead to duplicative reporting, resulting in weak quality of the existing data sets. AFME proposes that the link between the Systematic Internaliser (SI) status and Post-Trade transparency/reporting is removed and that a designated reporting entity register is created and maintained by the FCA. This would remove uncertainty on who should report a transaction and, as a consequence, will lead to enhanced quality of the reported data. This approach would also provide the benefit that firms qualifying or opted in as SIs will only be those firms acting as liquidity providers. This would provide much-needed clarity to the overall equity market structure. Improving liquidity calculations for bonds The liquidity calculations to determine which bonds should be deemed liquid is a key element of the MIFIR transparency framework. AFME has been a long-standing supporter of a well-calibrated transparency framework for bonds, which recognises the heterogeneity of fixed income markets and that does not put committed liquidity providers at undue risk. The fact that the quality of existing data sets remains patchy makes liquidity calculations based on quantitative criteria only, prone to false positives (i.e. bonds deemed liquid that are effectively illiquid). AFME members are supportive of HMT’s proposal to move away from regular liquidity calculations based on quantitative criteria only, in favour of a qualitative and quantitative criteria. The current liquidity calculations outlined under MiFIR/MiFID II are complex and do not accurately measure or capture true liquidity within the market. Well-balanced and measured qualitative criteria, that more accurately captures and reflects true liquidity within the market would help smoothing out false determinations of liquidity. The HMT Wholesale Markets Review’s objective is to ensure UK regulation remains fit for purpose and proportionate for UK capital markets. This is a sensible approach to better regulate financial markets. AFME advocates for the same approaches both in the UK and the EU. – Ends –
AFME and Protiviti report warns of potential barriers to adoption of cloud services in capital markets
22 Sep 2021
A new report published today by the Association for Financial Markets in Europe (AFME) and Protiviti outlines potential key regulatory barriers to the greater adoption of cloud services in capital markets and provides recommendations for policymakers and Cloud Service Providers (CSPs) to assist banks with their adoption. The report entitled “Building Resilience in the Cloud” finds that, while banks are increasing migration to the cloud and identifying solutions to address regulatory concerns, two solutions that are becoming increasingly proposed by policymakers - portability and multi-cloud strategies – are likely to introduce further barriers to adoption. The report presents an assessment of five scenarios, covering the failure of a CSP in a particular region through to the loss of an entire CSP globally, to highlight why these solutions may not be appropriate in all instances. The report finds that the proposed recommendations from policymakers around portability and multi-cloud strategies would present significant challenges to banks from adopting a risk-based approach, limiting the benefits of cloud services and increasing the technical complexity to support multiple CSPs. James Kemp, Managing Director, AFME, said: “Banks are adopting cloud for a wide range of benefits, including greater business agility, innovation opportunities, and the ability to increase their security and resilience. We have seen through the pandemic that cloud services have been fundamental to enable remote working and provide access to core IT and business services. “However, emerging policy in the EU and globally is in danger of mandating how banks adopt cloud because of the perceived risks for security, the concentration of providers, and resilience of the sector overall. While the solutions being discussed, such as ensuring portability or the use of multi-cloud strategies, can provide resiliency benefits, they risk introducing significant limitations and complexity which would lead to reduced cloud adoption overall. “Banks should not be limited in taking a risk-based approach tailored to their cloud usage and technical needs allowing them to deploy multiple complementary solutions for resilience, rather than specific solutions being mandated for all.” James Fox, Director, Enterprise Cloud at Protiviti, said: “With digital transformation continuing to drive the adoption of cloud within financial services, we have seen that banks in particular are becoming increasingly more confident in using the cloud for sensitive workloads. Despite increased regulatory attention, we have seen an overwhelming demand from banks for access to new and innovative services powered by the cloud, which increases security and resilience and enables banks to quickly react to unforeseen events, such as COVID-19, due to the flexibility and configurability of the cloud. By working with banks on this paper, we have seen the range of mechanisms that are actively being used to enhance the security and design of cloud infrastructure that allows incidents to be resolved quickly and efficiently. Whilst banks are proactively taking a risk-based approach to the adoption of the cloud, there is a need for further clarity on cloud resilience, risk requirements and the opportunities that exist for sharing best practice between banks.“ Recommendations in the paper where policymakers and engagement from CSPs can assist banks with the resilient adoption of cloud services include: Ensure regional and global alignment on cloud resilience and risk expectations; Enhance information sharing and transparency requirements for CSPs; Promote increased comparison amongst CSP service offerings; and Encourage cloud cross-border data flows and storage. – Ends –
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
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Rebecca Hansford

Head of Media Relations

[email protected]