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Recapitalising EU businesses post COVID-19: How equity and hybrid markets instruments can drive recovery
19 Jan 2021
A report by the Association for Financial Markets in Europe (AFME) and PwC reveals that an equity shortfall of up to €600bn threatens Europe’s economic recovery despite the significant public support measures and private capital made available across Europe to support economies during the pandemic. AFME calls on the European Commission and members states to introduce measures to bolster Europe’s equity and hybrid markets and expand funding avenues for businesses, further enabling Europe’s economic recovery In a report published today (19th) in partnership with PwC, AFME warns that Europe needs to bridge a gap of€450-600bn[1]in equity needed to prevent widespread business defaults and job losses as COVID-19 state support measures are gradually reduced. The reportRecapitalising EU businesses post COVID-19reveals that despite the support provided by governments and the private sector since the start of the pandemic, 10% of European companies have cash reserves to only last six months. The pan-European trade association is calling on authorities to explore and develop further short-term measures to support Europe’s equity and hybrid markets and accelerate the Capital Markets Union to help fund the recovery. Unless urgent action is taken, a spike in insolvencies could start as early as this month and threaten the EU’s recovery prospects, AFME warns. The report presents insights from interviews with businesses and private sector investors from across the continent to propose solutions to Europe’s emerging funding gap. The findings reveal that many mid-size and SME corporates do not wish to give up control of their business but are willing to pay a premium not to dilute their voting rights, as well as are willing to distribute a share of profits to investors. Hybrid instruments are ideally suited to address these needs. In order to bolster capital markets to support businesses in the recovery phase, AFME is outlining the following recommendations: Proposing a new EU-wide hybrid instrument designed specifically for the corporate sector. This could be in the form of a new preferred shared instrument, which is state-aid compliant, to build scale and liquidity, and which ideally could be developed to comply with social investment objectives to attract maximum investor interest. Scaling up existing EU-wide recovery support schemes such as the EIF European Guarantee Fund tailored to the needs of SMEs, particularly the smallest companies. Replicating existing member state best practices on hybrid instruments, as well as raising awareness of the range of capital markets instruments available to mid-caps and SMEs who may be unaware such options exist Exploring further use of innovative instruments, such as dual class shares to address the control concerns of companies as well as debt for equity swaps to reduce leverage. Recalibrating state aid rules for a systemic crisis. Accelerating equity investment measures under the Capital Markets Union project.
Governance of Market Abuse Surveillance Controls: An industry perspective
11 Jan 2021
The introduction of the Market Abuse Regulation in 2016, saw financial institutions implement a series of systems and controls to mitigate the risk of insider dealing, market manipulation and unlawful disclosure of inside information. Since then firms have needed to continually adapt and evolve their controls in order to continue to meet regulators expectations. The impact of the Covid-19 pandemic resulted in firms having to ensure their approaches were agile and able to manage the emerging risks caused by market volatility and unprecedented numbers of colleagues working from home. AFME in collaboration with EY, have today published ‘Governance of Market Abuse Surveillance Controls – An industry perspective’. The report provides insight into firms current state of surveillance governance and considers what the future state could look like, whilst addressing the key questions firms are actively addressing as they develop their future strategic roadmap. Drawing on survey responses and deep dive interviews with AFME Members and European regulators. We hope that the insights in this paper will help to frame the key aspects of this debate and provide firms with industry insight to advance the effectiveness of their surveillance governance The report considers five key themes: Restructuring the operation model Navigating risks through the STOR process Establishing a well governed framework Chasing completeness and A change in approach: focusing on risk driven methodologies This report sits alongside a series of compliance papers we have produced in partnership with EY, including the The Future of the Compliance Control Environment and the Scope and Evolution of the Compliance Function
The Future of the Compliance Control Environment
23 Nov 2020
In 2018, AFME published a paper in collaboration with EY on the ‘Scope and Evolution of the Compliance Function’. It identified that the availability of more complex data would allow Compliance to adopt different ways of managing risks, for example, anticipating or predicting risk events more proactively. This would be likely to result in broader demands from Compliance’s stakeholders, both within and outside the firm. Alongside these, it was anticipated that there would be further structural changes across the 3 Lines of Defence, driven in part by operational efficiency and cost effectiveness, as well as heightened regulatory expectations. While this transformation has been taking place to varying degrees, the disruption to the capital markets industry caused by COVID-19 has resulted in immediate and fundamental changes to AFME’s Members, e.g. large-scale remote working and accelerated developments in the use of technology. The lessons learned during the 2020 pandemic period are likely to inform new ways of working, which will undoubtedly lead to a more fragmented workforce going forward and thus the need for greater supervision and surveillance techniques, including the use of a broader set of data points combined with enhanced analytical tools. This paper focuses on four key areas with respect to the compliance control function and offers some considerations for firms thinking about how to ensure that the control environment continues to be robust, and can evolve to address new and developing risks in these conditions: Enhancing data and analytical tools Surveillance, testing and monitoring Conduct, culture and well-being Remote working and location strategy”
First industry roadmap helps embed sustainable finance into banks’ strategy and governance
10 Sep 2020
Banks need to embed sustainable governance principles across the whole organisation and adopt a consistent corporate strategy if they are to successfully transition to a sustainable finance model according to guidance issued today, 10th September, by the Association for Financial Markets in Europe (AFME) and global law firm Latham & Watkins. The industry roadmap “Transition to Sustainable Finance” looks at the challenges facing firms as they integrate ESG principles into their business models and addresses issues such as corporate purpose, board governance oversight, shareholder activism and greenwashing. The roadmap is the first to look at how firms are set to deliver on their sustainable finance targets and aims to provide boards and senior leadership with a go-to guide on issues to consider from a governance, compliance and legal perspective. The guidance comes as a new AFME survey highlights that sustainable finance is a priority board issue and banks have made considerable progress to adapt their business model to deliver on sustainable finance targets. Looking into how 13 of the biggest global banks are structured to adopt sustainable finance principles, the survey reveals: 85% of respondents incorporate sustainable finance into their overall business strategy 85% have set sustainability targets 77% have established Board level oversight on sustainable finance 63% have started integrating sustainable finance considerations across risk management and business development but more work lies ahead for other functions Richard Middleton, AFME’s Managing Director, Head of Policy Division, said: “Sustainable finance is a fast-moving area and the regulatory environment is evolving rapidly. As all areas of firms’ businesses are affected in the transition to sustainable finance, it is important that firms establish and develop their corporate strategy, governance, purpose and objectives. “Our White Paper is intended as a roadmap to help senior management and the board to embed sustainable finance in a holistic and systematic manner across the business.” Judson Berkey, Managing Director, Sustainability Strategy, UBS said: "The sustainability journey for a bank involves more than just creating new products. A transformation is needed to embed new thinking into all aspects of the firm including governance, risk management and compliance. This thought leadership paper highlights key considerations in that crucial effort." Nicola Higgs, partner at Latham & Watkins, added: “We are delighted to have worked with AFME and its members to create a practical framework for the financial services industry looking to navigate the transition to sustainable finance. Financial services firms are seen as key players in driving the sustainability agenda of global regulators, presenting both opportunities and risks for those firms. The Paper provides a framework to navigate those risks and remain competitive in an increasingly significant global market.” Note to editors: The roadmap “Transition to Sustainable Finance” sets out 15 key principles in the areas of governance, conduct and compliance that banks should consider, including: Objectives and governance: Ensuring that a central corporate purpose is set and that there is collective understanding, oversight and accountability in relation to sustainable finance-related risk amongst internal and external stakeholders. Risk management: Whether sustainable finance create new risks for an organisation, and if so, how to integrate them into current risk management. Compliance & Monitoring: How to measure, monitor and mitigate the key risks arising from the transition to sustainable finance, including the tools and metrics that may be necessary to achieve this. Impact measurement: How to assess the progress and effectiveness of existing strategies deployed against established sustainable finance goals and determining what adjustments, if any, are required and identifying opportunities for further development and innovation. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
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