AFME has responded to the European Commission’s consultation on a legislative proposal to open up access to financial data (FIDA proposal). James Kemp, Managing Director at the Association for Financial Markets in Europe (AFME), said: “We support the EU’s ambition to create a consumer-centric data-sharing ecosystem. To achieve this, policies such as the new EU Open Finance framework need to contribute to a fair and secure data ecosystem that adds value to consumers and end users. In order for the proposal to bring the full suite of benefits to the EU financial data ecosystem, some key changes are required – for example sufficiently regulating the new category of data users (‘Financial Information Services Providers’) and facilitating reasonable compensation that enables investments in secure and innovative data markets.” Among the key points from AFME’s consultation response are: Trust is key to building a data-sharing ecosystem. Building such trust requires secure data-sharing infrastructure and safeguards around the use of data. To ensure data is used correctly and securely, the Open Finance framework needs to uphold the digital operational resilience, cybersecurity and data protection standards currently applied to financial institutions. We remain concerned that the new category of data users (‘Financial Information Service Providers’) could become a weak link in the financial system if they are not adequately regulated and supervised to the same high standards. To maintain a fair and level playing field in data sharing across sectors, BigTech gatekeepers should not be allowed to authorise as Financial Information Service Providers and use data held by financial institutions under Open Finance until sharing of data by these companies has been effectively implemented under the Digital Markets Act. To preserve the ability and create the incentives for data holders to make adequate investments in secure data-sharing infrastructure, it is key that reasonable compensation be included in regulation, including the Payment Services Regulation. Compensation should be set in a way that enables access for all participants. For small and micro data users, we believe compensation should be capped at cost, whereas mid-sized and larger companies that use data should be required to pay a reasonable and market-led compensation to data holders for investing in secure data-sharing infrastructure. The greatest potential added value exists for retail consumers. Open Finance should therefore only be applied to individuals and SMEs. Moreover, data-sharing policies like Open Finance should not discourage banks and others from investing in data-driven customer services. Due to potential infringement on trade secrets and intellectual property, proprietary and inferred data should be kept out of scope. We also support data sharing without unduly delay, but real-time data sharing is disproportionately burdensome and does not yield commensurate benefits. Due to the complexity of scheme development and the technical build required, we support an implementation period of at least 36 months for the schemes, followed by at least 12 months for the rest of FiDA. This should begin with a phased approach that prioritises targeted use cases identified as delivering the most significant benefits and requiring limited development, also to facilitate a more balanced and pragmatic decision-making process with regards to the governance of the data sharing schemes. - ENDS -

The Association for Financial Markets in Europe (AFME) has appointed Rémi Kireche as Director of Advocacy to help drive forward the Association’s advocacy on Capital Markets Union (CMU), including in the policy areas of securitisation, equity capital markets, post-trade and sustainable finance, among others. Rémi has spent 10 years working in financial services and public affairs in Brussels and Paris. He joins AFME from Flint Global, a political risk consulting firm where he advised financial institution clients on EU financial services policy and regulation. Prior to Flint Global, Rémi worked for more than 5 years at the European Commission in the Directorate General for Justice and Consumers. Rémi has also worked directly within financial institutions, having worked at one of AFME’s Board Member Firms, Société Générale, as a European Affairs Adviser. Prior to this he worked for the French regulator, the Autorité des marchés financiers (AMF), as a European Policy Officer, providing analysis and briefings on the activities and proposals of EU Institutions relevant to the AMF’s mandate, such as CMU. In 2013, Rémi also worked in Michel Barnier’s cabinet when he was the European Commissioner for the Internal Market. Jacqueline Mills, Managing Director, Head of Advocacy, said: “We are delighted to appoint Rémi as a Director in AFME’s Advocacy team, joining us in Brussels to lead our work promoting capital markets which support economic growth across the EU and the UK. Rémi joins at a strategically important moment as the European Institutions begin to reflect on which actions to take forward in the next policy cycle to ensure that capital markets have the scale and depth needed to support investors and issuers. Rémi brings a wealth of experience in financial services policy from both the public and private sectors and we look forward to working with him.” – Ends –

The Association for Financial Markets in Europe (AFME) welcomes the first meeting of the EU-UK forum for regulatory cooperation, which took place on 19 October. Adam Farkas, Chief Executive of AFME, said: “The inaugural meeting of the Forum presents a unique opportunity to lay the ground for a cooperative, stable, and trusting long-term relationship by ensuring structured dialogue on both jurisdictions’ regulatory initiatives and priorities.” “The Forum should be designed to facilitate exchange of information on the functioning of regulatory frameworks as well as on key regulatory developments for financial services and their implementation. The Forum should also provide a platform to allow both jurisdictions to identify and share concerns related to any emerging risks to financial stability. It should also form the basis for cooperation on common challenges such as climate change and the digital transition. Ideally, a strong bilateral regulatory dialogue should comprise both structured discussion and ongoing informal dialogue at working level, and we hope that the meetings of the Forum will allow for cooperation to intensify at all levels.” – Ends –

In response to a Call for Evidence on shortening settlement cycles in the EU, published by ESMA today, Pete Tomlison, Director of Post Trade at the Association for Financial Markets in Europe (AFME), said: “This Call for Evidence is an important step in moving forward the debate on T+1 settlement. Moving to T+1 should not only be a question of “when”, but also “why” and “how”. It is important to ensure that any decision to shorten the settlement cycle is underpinned by a robust qualitative and quantitative analysis of the potential benefits, risks and costs, and also takes account of the unique complexities of EU capital markets. Any potential move to T+1 will require collaboration from a broad range of industry stakeholders, with the ultimate objective of making EU securities markets safer and more efficient. We welcome the opportunity to contribute to this initiative.” – Ends – Notes to Editors: AFME is leading the European Task Force in preparation for the move to T+1 settlement cycles. Our current areas of focus are: Helping members prepare for the US move to T+1 in 2024 Participating actively in the UK Accelerated Settlement Task Force Leading the collaboration with other EU stakeholders to present a common view back to EU authorities Preparing a report on what the industry can do now to address the high level of settlement fails, and prepare the ground for T+1

Today, the Association for Financial Markets in Europe (AFME) has submitted its response to the Financial Conduct Authority’s (FCA) consultation paper CP23/15: The Framework for a UK Consolidated Tape. AFME’s response outlines members’ views on the framework that the FCA has proposed for the UK bonds consolidated tape and includes commentary on the UK equities consolidated tape, for which a dedicated consultation paper is expected in 2024. AFME welcomes the FCA’s initiative to embed the framework that will encourage the development of a consolidated tape in the UK. Members’ response to this consultation reflects the broad industry consensus that a resilient, cost-effective consolidated tape providing timely, good quality data will facilitate greater access to a common view of the UK market to all investors, irrespective of resources and level of sophistication. This comprehensive and standardised view of equities and fixed income trading environments will enhance the global competitiveness of UK wholesale markets. Victoria Webster, Managing Director of Fixed Income at AFME, said: “The establishment of a consolidated tape for bonds in the UK is a major milestone. The UK has a leading global market and it is vital to ensure that it remains competitive by widening access to market data and broadening participation in capital markets from investors, both domestically and internationally. “At the same time, even an appropriately constructed consolidated tape will not fully address the current unacceptably high cost of market data. We trust that the FCA’s extensive work on wholesale data will help address anomalies in this area, which are detrimental to financial markets and their users.” While there are many aspects to consider around the establishment of a consolidated tape AFME views the following as most pressing: Licensing – The CT should be sold under a simple, single market data licensing framework covering a variety of use cases and clearly specifying what is deemed re-use and what is considered direct use of data. A standardised CT user licence would remove disincentives to access data via an authorised CTP, arising from managing multiple licenses with differing terms and policies. Tender process - Price should not be the only determinant in the second stage bidding process. A CTP may have included features that are more useful for the market but their overall offering may not be the cheapest. It is important that a balance is found between operational capacity and the price charged. Governance – A consultative committee representative across a range of users and data producers, with a rotation of its members, should meet regularly to advise and suggest recommendations to the CTP. Operating costs - The cost of operating the CT should be aligned with keeping the cost of accessing the CT as low as possible for users. A key benefit of the CT is the potential to facilitate market data access to market participants who currently cannot access these feeds. Furthermore, information on operating costs should be transparent to and regularly shared with the consultative committee. Pre-trade data for the equities tape - A well-functioning, commercially viable equities CT requires pre-trade data from the outset. This data, including both price (best bids and best offers) and size, should be real-time, continuous, and available to five levels of book depth in total with full attribution (identifying the venue). An equities CT with these features would be highly valuable to market participants and would perform well in comparison to equivalent mechanisms in other jurisdictions. AFME looks forward to making further progress on this initiative with the FCA and other industry partners. – Ends –

The Association for Financial Markets in Europe (AFME) has submitted its response to the EU Commission “Have your say” consultation on the EU Retail Investment Strategy, raising member concerns about the overly prescriptive nature of the proposals. Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME) commented: “AFME strongly supports the Commission’s objective of making the distribution of securities to European retail investors more efficient. We also support the Commission’s ambition to significantly raise the percentage of European retail investors’ direct and indirect participation in EU capital markets. However, in view of the fact that a significant number of investment products distributed to retail investors are sourced and manufactured by wholesale banks, asset managers and insurers, AFME is concerned by the many ways that the Retail Investment Strategy (RIS) could impact wholesale capital markets, as well as the availability of investment product for retail investors, reducing rather than enhancing their choice. AFME believes that alternative approaches, including those used in other jurisdictions, should continue to be carefully explored based on their success to ensure the effectiveness of the proposals.” In particular, AFME notes the following 4 areas of the proposals: Value for Money AFME supports the Commission’s ambition to provide fair value to retail investors. However, the proposed prescriptive benchmark-based approach is problematic in terms of achieving consistency and accuracy for any such benchmark to give a fair indication of cost and/or performance. The value of a product/investment to a particular investor depends on many factors, such as quality of service or sustainability features, which is inherently subjective and differs between clients. Additionally, this heavily quantitative-based approach could result in some investors receiving products that do not offer value for money because the benchmark overlooks other relevant factors. AFME believes it would be more effective to either pursue a more qualitative, outcomes-based approach or an approach facilitating flexibility between quantitative and qualitative factors. Best Interest AFME does not see a compelling rationale to revise existing Best Interest requirements in the MiFID inducements rules. The Commission’s proposals on Best Interest impose a significant burden on firms and seem to be duplicative of the value for money proposals. The new criteria takes an approach towards investment advice that is mostly focused on costs, and does not consider other key parameters that are important in the context of investment advice, such as best interests, since many products with higher fees could potentially also deliver a better overall return to particular investors best suited for those types of products. This approach risks “downgrading” the value of the investment advice as a whole. The new criteria may also result in advisers steering retail clients only towards the lowest cost products (e.g. sovereign bonds, certain categories of shares, or passive investment funds), which may not always lead to best investment results for retail clients who may be looking for best overall returns over the long term. Inducements It is helpful that the Commission has not applied the inducements ban to advised distribution models. However, with respect to the inducements ban for non-advised services pertaining to packaged retail and insurance-based investment products(PRIIPs), the scope and rules require further adjustments to ensure that they do not cast the net wider than is required to meet the Commission’s stated objective in this area. In addition, AFME is of the view that the post RIS-review should occur five years (not three years) after the RIS amendments have become fully operational. The review should also look at the whole package (rather than the inducement changes in isolation). AFME also suggests clear criteria should be set for the review, including explaining how it will measure the effectiveness of the revised inducement provisions in managing conflicts of interest and considering other factors, such as consumer outcomes and the supply of products for different investor requirements. Client Categorisation AFME welcomes measures to enable more sophisticated and experienced retail investors to ‘opt up’ to professional client status. This can facilitate a broader range of investment opportunities to a wider range of clients which may result, overall, in an increase of capital being made available to issuers in EU capital markets. To achieve this, the standards which will specify the ‘opt up’ criteria must be clearer in scope and on the evidence required to demonstrate financial expertise. – Ends –

Following the publication of the EU-wide stress test results by the European Banking Authority today, the Association for Financial Markets in Europe (AFME) issued a statement on behalf of its members that participated in the exercise. Caroline Liesegang, Head of Prudential Regulation at AFME, said: “AFME welcomes the results of this year’s EBA stress tests. Despite an extreme ‘adverse scenario’ including high and persistent inflation and a severe decline in EU GDP, plummeting by 6% over the 3-year period, this year’s stress test shows that the steps that both banks and supervisors have taken over the years to strengthen the resilience of the EU banking sector are now paying off. “The results reflect a better starting point for banks, with higher levels of capital, improved asset quality and profitability driving the change compared to the previous stress test. We also note that EU subsidiaries of international banks, included in the EU-wide stress test for the first time this year, have finished the exercise showing a robust solvency position. “Notwithstanding the overall positive outcome, we urge the EBA to take a fresh look at the stress test methodology and remove or at least recalibrate some of the existing constraints that often override banks’ bottom-up projections. The EBA stress test follows a constrained bottom-up approach, involving banks in identifying risks using their own models to encourage better risk management practices. A successful stress test should find a balance between supervisory standardisation and accommodating individual bank characteristics. “Finally, the new banking package (CRR3/CRD6) - the entry into force of which is expected by January 2025 - will warrant a comprehensive review of the EU stress test framework. The structural changes to the calibration of the Pillar 1 framework combined with other overlaps across the Pillar 1 and Pillar 2 capital risk coverage warrant a critical assessment of the methodology. “We look forward to working with the EBA in further evolving the methodology for the 2025 stress test.” In particular: Compared to the previous exercise, with an average depletion of 459 bps under the adverse scenario and the average the CET1 ratio in 2025 at 10.4% the results are an improvement to the 2021 exercise, under which the average capital depletion was 497bps, and the end-state CET1 ratio under the adverse scenario was 10.2%. Net interest income is the largest contributor to the increase in earnings (938 bps) and capital over the stress period, even if capped at the level of the starting point. Credit risk losses are the main negative contributor, with the increase in losses under the severely adverse economic scenario contributing 405 bps depletion to the CET1 ratios. It is also worth mentioning that market risk losses under the adverse scenario contribute 112 bps to the depletion in CET 1 ratios. As a new feature of the 2023 EU-wide stress test, net fees and commission income (NFCI) projections were prescribed to banks based on a centralised top-down model. Under the adverse scenario, the aggregate NFCI and dividend income decline by 22% on average over the three years of the horizon. In terms of wholesale activities, net trading income (NTI) drops significantly during the first year of the adverse scenario, marking a loss of 55bn EUR. The main drivers of the NTI drop are losses from positions in economic hedges, held with a trading intent (HFT) and liquidity reserves. HFT losses that were floored for banks’ projections amount to 21.5bn EUR (-25 bps), while client revenues in 2023 dropped by 44% (from 36bn to 20bn EUR), providing still a positive cumulative contribution to the NTI in the three years of the adverse scenario. Elsewhere, we note that the one-size-fits-all nature of the methodological constraints may severely impact banks’ final results based on business model rather than risk profile. The constraints in the methodology have a significant impact on specific areas of banks depending on bank specific business models. In particular, this year’s stress tests resulted in severe shocks for markets and securitisations businesses. Furthermore, with limited modelling allowed in net interest income and a uniform methodology applied to different business models, national and business model specificities with regard to net interest income may are not reflected in the outcome of the stress tests. Given the constraints, in many cases the bank internal view of risks and the impact of the stress scenario is not in line with the final stress test results. This discrepancy and banks’ inability to reconcile the differences makes it difficult to explain the results to the market. AFME supports improving the transparency of the constraints and overlays applied to the bank specific results and of the top-down models developed by the EBA and the ECB to calculate (e.g. fees and commissions) or challenge banks’ projections. AFME welcomes the expected revisions to the EBA methodology, and is willing to collaborate with the EBA to develop the roadmap to 2025 stress tests. In this context, AFME is particularly concerned about the severe treatment of capital markets activities in the EBA stress test methodology and scenarios vis-à-vis more traditional commercial and retail banking products. This creates a level playing field issue for banks that serve clients and finance the economy through these activities. AFME looks forward to discussing ways to address this level playing field issue with the EBA. We specifically highlight concerns with the market risk methodology, suggesting a need for revising the prescribed floors on trading losses and addressing the lack of coherence and over-conservatism. The former in many cases replaces banks’ hard work on full revaluation of market risk under the scenario with a simple balance sheet multiplier, which is not risk sensitive. Beyond this particular case, the market risk methodology includes multiple shocks (full revaluation impact, increase in market liquidity reserves and loss of client revenues), which may be either mutually exclusive or overly conservative. In addition, the market risk methodology assumes that losses suffered in the first year of projections are never recovered in subsequent years, which is not aligned with the history of past market risk episodes. Finally, AFME and its members are keen on re-establishing of the process, with hopefully the number of ad-hoc templates reduced for future exercises. While we understand that there was an acute desire to capture data on topical items in direct response to the recent interest rate risk issues that resulted in bank failures in the US, it is difficult to manage the workload and commitments when additional templates are added late in the process. AFME recommends that the authorities should use where possible the alternate years when the EU-wide stress tests are not run to look at any additional targeted exercises outside the main perimeter of the EBA stress test. ENDS -

In response to the UK Government’s Mansion House reforms, announced today, including the publication of the Investment Research Review, allowing for optionality on how to pay for investment research, Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME) commented: “Today’s reforms from the UK Government are another welcome step towards driving greater access to capital markets, following the positive rulebook changes proposed in the Wholesale Markets Review. “In particular, AFME members are supportive of the UK Government’s approach to the provision of investment research which allows for more flexibility in that clients will have the option to choose how they pay for the research they consume, whether bundled or unbundled, by removing the requirement on market participants to unbundle which is currently contained in the EU’s MIFID II legislation. “It should also be noted that the investment research market is inherently international and further changes to the UK’s regulatory and legislative environment in this area should prioritise, where possible, alignment with other jurisdictions. It should also provide a level playing field for both UK providers and consumers of research competing with international counterparts. AFME notes that similar themes are being addressed in ongoing discussions by other policymakers, and it is important for the respective UK initiatives to take account of developments in other jurisdictions such as the US and EU. “From our own analysis, AFME has found no evidence to support a causal link between the introduction of the unbundling rules and the pre-existing declining trend in SME research coverage. Among the numerous surveys and reports AFME has conducted on this topic, no respondents have identified the unbundling regime as a causal factor in declining SME coverage. “Noting the UK proposals on a new research platform and a pre-public offering arena, AFME will be interested in assessing the scope and objective of such new infrastructures and their impact on UK financial markets and their users.” On simplification of prospectuses: “AFME fully supports simplifying rules for prospectuses, both in the context of making procedures, disclosure and oversight more effective and efficient in primary issuances and also in the context of questioning if or when a prospectus (or other shorter form document) is needed for a secondary or follow-on issuance. These are welcome proposals which will go a long way towards increasing the attractiveness of the UK as a venue for company listings.” – Ends – Note to Editors: AFME and UK Finance response to Investment Research Review Call for Evidence https://www.afme.eu/Portals/0/DispatchFeaturedImages/UK%20Finance-AFME%20response%20to%20IRR%20Call%20for%20Evidence%20-%2024April23%20-%20Final.pdf AFME reports which find no evidence of a causal link between unbundling rules and the decline in SME research coverage: Bridging the Growth Gap, BCG report (February 2015) Raising Finance for Europe’s Small & Medium Sized Businesses: (September 2015) The Shortage of Risk Capital for Europe’s High Growth Businesses (March 2017) Recapitalising EU businesses post COVID-19, PwC report (January 2021) Introducing a New Hybrid Recapitalisation Instrument for Smaller EU Corporates, PwC and Linklaters report (November 2021) AFME Capital Markets Union Key Performance Indicators – Fifth Edition (November 2022, pages 83-85) AFME Response to EU Listing Act Consultation – Research Section (March 2023, page 16)

AFME has today responded to the European Commission’s consultation on the first set of European Sustainability Reporting Standards (ESRS) – a key instrument to enhance the availability of sustainability information, reduce gaps in sustainability-related information and enhance the usability of the broader EU sustainable finance framework. Oliver Moullin, Managing Director, Sustainable Finance, said: “The Commission’s efforts at streamlining reporting obligations can enhance proportionality and reduce the overall burden for companies. However, it should strike a balance with the overall objectives of the standards to strengthen disclosures, counter greenwashing, and enable financial institutions to fulfil their own disclosures, as well as investment decisions and risk management.” “To ensure that financial institutions can effectively comply with their reporting requirements, it is essential that the Commission provides a solution to enable them to report effectively where relevant metrics have been omitted by their counterparties due to not being assessed as material.” Under the proposed ESRS, companies can now decide to omit certain datapoints if they assess the information not to be material. These datapoints, however, include information required by financial institutions to comply with their own disclosures and must be included in Pillar 3 and the Sustainable Finance Disclosure Regulation (SFDR) reporting on a quantitative basis. Proxies or estimates would not be effective for this purpose and may expose firms to liability risks. AFME’s response elaborates on the need for this urgent solution, and puts forward recommendations aimed at striking the balance between flexibility and phase-ins with the regulatory expectations and disclosure requirements already applying to financial institutions. AFME also recommends that the Commission continues to improve interoperability between ESRS and international standards by (i) strengthening its engagement with the International Sustainability Standards Board (ISSB), including in relation to the financial materiality assessment, and (ii) developing comprehensive tools to map and help companies navigate the differences between EU and global standards. – Ends –

In response to the Financial Conduct Authority (FCA)’s announcement today that it will consult the industry on reforms to improve markets and bolster competitiveness, including a UK consolidated tape, Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME) commented: “The UK financial regulator has today set out further details of how it plans to make UK markets more competitive, including a focus on a single consolidated tape provider per asset class. This is a welcome step as it will help to ensure that associated data costs remain as low as possible, while addressing the current fragmentation of post-trade transparency data. A single consolidated tape provider will also be easier for the official sector and industry to monitor. “AFME supports the development of a consolidated tape and the role it plays in improving data quality. However we recognise that even an appropriately constructed consolidated tape will not fully address the current unacceptably high cost of market data. We trust that the FCA’s extensive work on wholesale data will help address anomalies in this area, which are detrimental to financial markets and their users. “Open and constructive engagement with industry stakeholders is an important process for the development of high quality regulation, which in turn promotes strong and healthy financial markets and, ultimately, growth.” AFME advocates for evidence-based policy making and we are extremely supportive of the rigorous approach that the FCA has adopted in relation to the cost benefit analysis supporting its policy positions.” On the development of a UK consolidated tape, AFME’s position is: A single independent consolidator for each asset class (i.e. shares and bonds) is appointed. The consolidated tape is offered at fair and appropriate price levels for professional and non-professional users respectively to ensure that is commercially successful. The consolidated tape is sold with a simple, single market data licensing framework covering a variety of use cases. With industry stakeholders’ involvement, data quality is addressed alongside the development of the consolidated tape, and the FCA is empowered to monitor and enforce the quality of data provided to consolidated tape providers. Mandatory contribution from all venues to the tape is required. There is no mandatory consumption of the consolidated tape. On the bond Consolidated Tape, the post-trade consolidated tape ensures committed liquidity providers are not exposed to undue risk, especially when trading in illiquid instruments or transactions above a certain size, given that there are relatively long timeframes to unwind or hedge the trade in such instances. On the Equities Consolidated Tape, the consolidated tape includes an ambitious level of pre and post-trade data. This tape should be continuous and operate in real time to ensure that it gives users a complete picture of the market while remaining commercially viable. AFME looks forward to analysing the details of the papers and to engaging with the FCA on this fundamental issue. – Ends –