The Association for Financial Markets in Europe (AFME) today published its model clause for contractual recognition of bail-in. This provides model wording designed to assist banks in complying with obligations under Article 55 of the European Union’s Bank Recovery and Resolution Directive (BRRD). The Directive requires banks to insert clauses in contracts to give effect to bail-in in a very broad range of liabilities governed by non-EU law. AFME’s new model clause is part of efforts to ensure the cross-border effectiveness of resolution and provide banks and counterparties with model drafting to assist with the significant challenges of implementation. The model clause is aimed at inclusion in debt instruments and is supported by a legal opinion. The model clause has been developed with assistance from Cleary Gottlieb Steen & Hamilton LLP and input from AFME’s members. Bail-in provisions, which come into force in most EU jurisdictions from 1 January 2016, allow a resolution authority the power to cancel, reduce, or convert into another form of security an amount owed to a creditor. The UK, Germany and France have already transposed these bail-in requirements. The clause was introduced in Brussels today during a discussion forum chaired by AFME and hosted by Cleary Gottlieb. The event included a keynote speech by the European Commission’s Patrick Pearson, Head of Unit, Resolution and Crisis Management, Directorate General Financial Stability, and panel discussions on the implementation of Minimum Requirement for Own Funds and Eligible Liabilities (MREL) and Total Loss-Absorbing Capacity (TLAC), as well as the challenges of applying Article 55 to various liabilities. Commenting on the publication, Oliver Moullin, Director, Recovery and Resolution at AFME, said: “AFME’s model clause for contractual recognition of bail-in should assist banks and counterparties with meeting the requirements of Article 55 BRRD in relation to debt instruments and support cross-border resolution. While AFME is very supportive of the objectives of ensuring that cross-border resolution is effective and the model clause should support this, we continue to have concerns regarding the breadth of the scope of Article 55 and have proposed changes that should be made to address this.” David Gottlieb, Partner, Cleary Gottlieb Steen & Hamilton LLP, said: “Cleary Gottlieb is pleased to have assisted AFME and its members in the development of a model bail-in clause for use by issuers of debt securities and capital instruments organized in the United Kingdom that are subject to the requirements of Article 55 in their liabilities governed by New York law. It is also adaptable for issuers subject to the laws of other EU Member States and for liabilities governed by the laws of other non-EU jurisdictions. The model clause is intended to be a simple and straightforward means of addressing the requirements of the BBRD as transposed in the UK and the Final Draft RTS published by the European Banking Authority in July. It also satisfies the requirements for public issuances in the United States and provides the basis for a legal opinion as to the enforceability and effectiveness of the provision under New York law, as required by the BRRD. “Aside from transferable debt instruments, it is a mammoth administrative task for banks to think about adding the bail-in clause to every single contract or agreement that creates a liability under non-EU law since it is largely what they do. The general consensus of the industry is that further legislation is going to be required to narrow the scope of eligible liabilities under Article 55.” -ENDS-

WASHINGTON, 12 August 2015 – The Global Financial Markets Association (GFMA) and the Institute for International Finance (IIF) today released a comprehensive new report from PwC on the state of global market liquidity, produced on behalf of both Associations. “The findings from our research suggest early warning signals that regulation and other market factors are contributing to a reduction in certain aspects of secondary market liquidity that is likely to be exacerbated by the unwinding of quantitative easing or another stressed market situation,” said the report’s author, Nick Forrest, Director in PwC UK’s Economics and Policy Practice. “Our analysis suggests it is important for policymakers to consider the aggregate impact of current regulation and weigh the incremental financial stability benefits of new rules against the incremental costs of diminishing market liquidity to ensure regulation is not counterproductive.” The Associations commissioned PwC to undertake a broad review of market liquidity data given the importance of liquidity to an efficient financial system and increasing concerns from market participants and policymakers regarding the impact of financial regulation on liquidity. PwC’s analysis focuses on available data regarding the tightness, immediacy, breadth and depth of liquidity and concludes that there are grounds for policymakers to review the calibration of reforms to date and the ongoing regulatory agenda, in order to properly understand the effects of regulatory initiatives by asset class, and to consider whether upcoming regulatory initiatives could likely exacerbate the trends in liquidity with no incremental benefits to safety and soundness. “Robust market liquidity is essential to efficient capital markets that can drive capital formation, investor opportunity and economic growth. PwC’s findings indicate the need for policymakers to engage in further analysis of the cumulative impact of the rules implemented before moving forward with any new rules that could impede the markets from fulfilling this role,” said GFMA CEO Kenneth E. Bentsen, Jr. “A tremendous amount of regulation has already been implemented over the past five years in response to the financial crisis. While the intent to improve financial stability is entirely appropriate, regulators must also consider the impact to market liquidity.” “PwC’s report takes an important snapshot of recent market conditions and identifies key factors that are contributing to reduced liquidity in some financial markets,” said Tim Adams, President and CEO of the IIF. “This is the beginning of an intensive effort to better understand and evaluate this complex and rapidly evolving issue and to periodically present our findings to policymakers worldwide. As the study illustrates, the cumulative impact of all recent financial reforms is not yet known. Regulators should take this opportunity to assess the total impact of recent reforms on market liquidity and consider it carefully before moving forward on any new rules.” PwC’s analysis finds that notwithstanding the benign market environment encouraged by monetary stimulus, a combination of several factors, including banks reducing risk following the introduction of new regulatory frameworks, have contributed to a measurable reduction in financial market liquidity across various asset classes. For instance, according to the report, European corporate bond trading volumes have declined by up to 45% between 2010 and 2015. Evidence suggests that block trades are becoming more difficult to execute without affecting prices. Banks’ holdings of trading assets have decreased by more than40% between 2008 and 2015, and dealer inventories of corporate bonds in the US have declined by almost 60% over the same period, finds PwC’s report. This has accompanied a decline in turnover ratios in corporate bond markets, where trading volumes have failed to keep pace with the increase in issuance. The analysis indicates an early warning that this withdrawal of dealer liquidity to date has not caused measurable economic damage due to quantitative easing programs and extraordinary monetary policy that are reducing liquidity pressures, and because market participants are adapting by trading some instruments less frequently and in smaller sizes. However, following the unwinding of QE or in a stressed environment, liquidity risks and market fragilities are likely to be revealed, potentially resulting in higher volatility infinancial markets. PwC’s report highlights the important role and underlying economics of market-making, and the roles played by different market participants which contribute to resilient market functioning, including the vital role of dealer market makers as a source of liquidity. The report concludes that it would be helpful for all stakeholders to better understand liquidity conditions and the link between regulation and market liquidity so that future regulations strike the right balance between promoting stability and maintaining financial markets liquidity. Further, it is important to review the global regulatory landscape to ensure coherence and to avoid detrimental financial markets liquidity effects or fragmentation that could disrupt the financial system. The full report, including an executive summary, is available here: http://www.pwc.com/gx/en/financialservices/ publications/financial-markets-liquidity-study.jhtml-ENDS-

The Association for Financial Markets in Europe (AFME) announces that Tanguy van de Werve has been appointed as Managing Director, Advocacy and Head of its Brussels office. Simon Lewis, Chief Executive of AFME said: “We are delighted that Tanguy van de Werve is joining AFME in thisvital role in Brussels. He combines a deep knowledge of the financial services industry and European institutions with direct experience of European membership organisations. “We are at a turning point as post-crisis regulation is re-shaping Europe’s capital markets with the aim of fostering economic and employment growth across Europe. AFME’s Brussels office has developed a significantpresence since 2011 and Tanguy will have an important role to play in taking our advocacy work forward.” Tanguy has over 20 years experience in a range of different financial services roles in Brussels. For the past nine years he has been Director General of Eurofinas, representing specialised consumer credit providers, andLeaseurope, representing the leasing industry. Prior to this, Tanguy worked at the European Banking Federation as Head of Financial Markets and Banking Supervision and as member of the EBF management committee. Tanguy’s previous roles include that of Senior Consultant in the Financial Services practice at Landwell (now PwC Legal) and Financial Markets Legal Adviser at Dexia. -ENDS-

Commenting on the consultation announced by the European Commission which will review the Capital Requirements Directive (CRD IV) and Regulation (CRR) on bank lending to the economy, Simon Lewis, Chief Executive of AFME, said: “We welcome Commissioner Hill’s announcement on the launch of a public consultation on CRD IV with a focus on the unintended consequences of post-crisis bank regulation. We are particularly encouraged that special consideration will be given to the financing for small and medium-sized businesses and infrastructure projects, which are key drivers for economic growth in Europe. “The post-crisis regulatory agenda is still evolving, with the Basel Committee currently re-writing the rules on the global prudential framework. We therefore believe that the Commission’s review is very timely. It should help shape the design and calibration of the final framework to avoid creating obstacles to growth. “AFME will work with its members to provide constructive input to the consultation.” -ENDS-

Commenting on the measures announced today in the UK Budget, Simon Lewis, Chief Executive of AFME, said: “We welcome that the UK Government is listening to requests to set out a long-term roadmap for the taxation of banks, and that the distortive impact of the bank levy will be reduced. We note however that the Budget announcement of a new tax on the banking sector still marks a further overall tax increase.” -ENDS-

Commenting on the publication today of the PRA’s Supervisory Statement SS28/15 on Strengthening Individual Responsibility in Banking, as well as its Policy Statement PS16/15, and on the FCA’s final rules and consultation paper CP15-22 on the same subject, Simon Lewis, Chief Executive of AFME, said: “AFME has consistently expressed its support for measures designed to continue the improvement of culture and ethics in the financial markets, including the FCA/PRA proposals to strengthen bankers' individual responsibilities. “We welcome the fact that the regulators have accepted a substantial number of the points we have made in earlier consultations. But a number of key points have not been taken on board. In particular, it is questionable whether the allocation of individual responsibilities is both proportionate, and also accurately reflects the way in which large international banking groups are governed. “We still await the detailed proposals relating to foreign banks' UK branches, and the proposed further consultations on various important matters, including regulatory references, which have come out of the Fair & Effective Markets Review. “All this will take time, and the current planned implementation programme is now even more challenging than previously. We would urge the regulators to continue to work together, and with banks, to establish final fair and effective rules in good time, so as to enable all staff to undergo the appropriate training and be clear as to their responsibilities. 7 March 2016 may no longer be a realistic commencement date for this key new regime.” -ENDS-

Commenting on the consultation launched today by the European Securities and Markets Authority (ESMA) regarding the implementation of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR), Christian Krohn, Managing Director at the Association for Financial Markets in Europe (AFME), said: “ESMA's proposals in this consultation raise numerous issues - one being the likely impact on fixed income markets. We are concerned the proposals could impact these markets’ liquidity, increase investor costs and make issuance of debt more expensive, and we hope to continue to engage with policymakers to ensure MiFID II will not be an obstacle to the growth agenda of the European Commission.” “For example, ESMA proposes to define a large number of instruments as liquid, although the majority of fixed income instruments trade highly infrequently, and it is a key component of ESMA’s mandate to assess liquidity. “While we support the introduction of transparency requirements, these need to be carefully tailored to the specifics of those markets to avoid disruption and broader impacts on investors and issuers.”

Capital markets union (CMU), a flagship initiative of the new European Commission, should focus on increasing the share of capital markets financing in the EU by creating an open, efficient framework for all types and sizes of corporate issuers and investors, argues AFME in a policy paper published today. To succeed in this task, CMU should examine legislative and regulatory issues, market impediments and business practices in the EU in order to identify a limited number of high impact initiatives to boost Europe’s capital markets, the paper says. An agenda for capital markets union outlines practical measures and a set of firm targets which AFME suggests should guide the work of the Commission on CMU over the next 5 years. Commenting on the publication, Simon Lewis, Chief Executive of AFME, said: “The capital markets union initiative must focus on outcomes by growing markets, reducing costs and offering more financing options for businesses across Europe. We are proposing a set of firm, measurable 5-year targets to guide the project and we would encourage the Commission to adopt a targeted programme with a limited number of new initiatives, each designed to deliver the maximum economic impetus.” Proposed five-year goals for capital markets union AFME proposes that a central goal for CMU should be to increase the overall share of debt financing from the capital markets in Europe from 25% of the total currently to at least 35%. This should be achieved without further reducing the ability of Europe’s banks to provide credit to the real economy. We also encourage the Commission to consider setting objectives for specific product markets; for example: increasing Europe’s stock market capitalisation from around 75% of GDP currently to 100% of GDP, as the Federation of European Securities Exchanges has proposed; at least doubling European issuance volumes of securitisation and private placement by encouraging greater participation by both bank and non-bank investors; and increasing the share of capital market funding of SMEs, through both equity and debt. An action plan targeting issuance, investment and market infrastructure The AFME policy paper outlines have highlighted three complementary objectives to drive action on CMU: Developing more efficient and liquid markets for equity and debt issuance:Industry initiatives on high quality securitisation and private placement should be complemented by review of applicable regulation, especially capital requirements, as well as the Prospectus and Takeover Directives; and by review of the tax regime for SME equity. Harnessing long-term savings to promote investment: The priority reforms from an AFME perspective are to: appropriately calibrate the capital framework for institutional investors (particularly Solvency II); to achieve greater harmonisation of EU insolvency rules; to maintain an economically viable model for capital markets research; and to widen product choice for investors. Promoting open, integrated capital markets infrastructure: The priority reforms from an AFME perspective are to: achieve closer integration of clearing and settlement systems; pass a new securities law to clarify collateral ownership; remove barriers to cross-border collateral use; and ensure broad and affordable access to market data. A summary table is provided below, outlining the main measures proposed in the AFME paper and highlighting near-term priorities for CMU and long-term cross-cutting reforms. An agenda for capital markets union is available hereon the AFME website. -ENDS-

The EU’s proposal for Bank Structural Reform (BSR) is likely to trigger a significant increase in the cost of market funding for banks, according to a PwC report commissioned by the Association for Financial Markets in Europe (AFME). Market liquidity would be reduced and costs would rise for market users such as companies and pension funds with a negative impact on economic growth and job creation, Impact of Bank Structural Reforms in Europe argues. Simon Lewis, Chief executive of AFME, commented: “We call on policymakers to carefully consider the negative consequences of the proposal and its consistency with other policy objectives. BSR as currently envisaged runs directly counter to the European Commission’s goals of creating deep, liquid capital markets to support growth in Europe while maintaining a healthy banking system.” The Report shows that the cost of separating banks would be substantial, with an estimated total annual cost for all EU banks affected of €21.2 bn. By far the largest element of this would result from higher funding costs averaging around 75bp. This is due to lower credit quality of the separated entities, primarily resulting from the loss of diversification benefits that previously accrued from being part of a larger single banking group. The analysis further shows that very large European banks no longer benefit in their market funding costs from an implicit subsidy suggesting that they cease to be regarded as “too big to fail”. This clearly owes much to the substantial regulatory programme that has been developed post the financial crisis and the proactive response of banks in implementing major structural and operational changes. Based on the cost projections, and the absence of any mitigating actions, bank group-level returns could fall by 2 percentage points on average as a result of structural reforms and by 14 percentage points for standalone investment banking and trading activities. This would lead to negative returns for the separated trading entities of 7 banks out of the 18 included in the study and likely prompt market exits. This in turn would lead to a concentration amongst market makers and further impact secondary market liquidity, leading to higher cost for borrowers. In particular we estimate that: Corporates would be subject to a 25% increase (30bps) in their typical borrowing spread (currently 125 bps) on debt issued through capital markets Investors in European corporate debt would be subject to higher trading costs (12bps), lowering their returns and leading to up to €82 bn in losses on corporate bond holdings Please contact us to get a copy of Impact of Bank Structural Reforms in Europe, or go to the reports page on the AFME website, seelink. Note to editors: In January 2014, the European Commission published a proposal for a new regulation on structural reform of the EU banking sector. Two main requirements of the proposal are the potential economic separation of trading activities that meet certain metrics and the prohibition of proprietary trading. -ENDS-

The Association for Financial Markets in Europe (AFME) and the International Capital Market Association (ICMA) have welcomed the G20 Infrastructure and Investment recommendations made this weekend at the Antalya summit. Simon Lewis, Chief Executive of AFME, said: “The G20’s recommendations encourage infrastructure investment from governments to stimulate growth. By 2030 the gap in infrastructure spending is forecast to reach up to $20 trillion. To help bridge this gap, it will be vital to increase the role that capital markets can play in infrastructure financing.” Martin Scheck, Chief Executive of ICMA, said: “Unlocking funds for infrastructure projects relies on initiatives that help to break down barriers to investment. As such, the G20 recommendations are to be welcomed as we hope they will go some way towards addressing the market inefficiencies and legislative and regulatory disincentives which currently pose challenges to infrastructure projects.” AFME and ICMA – both representing a variety of capital market participants – are committed to supporting the expansion of capital markets financing for all types of infrastructure projects. To this end, the two trade associations published the AFME-ICMA Guide to Infrastructure Financing in June 2015. The Guide is a reference source for market participants in infrastructure financing. Addressing public authorities, project sponsors, project companies and issuers, it sets out the relative merits of bank and bond markets and describes transaction processes while taking account of planning and procurement issues and key considerations, and also sets out key considerations for investors in project bonds. The AFME-ICMA Guide can be downloaded from the associations’ websites.