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AFME comments on Draft MiFIR report
29 Jul 2022
The Association for Financial Markets in Europe (AFME) welcomes today’s publication of the draft report by Rapporteur Danuta Hübner, which represents an important milestone in the legislative negotiations on the Markets in Financial Instruments Regulation (MiFIR) Review. Adam Farkas, Chief Executive at AFME, said: “The MiFIR review and the proposals from Professor Hübner come at a critical moment. With Europe facing challenging times in light of slowing growth and rising inflation, in addition to the economic impact of the war in Ukraine, the efficient functioning of secondary markets is even more vital to meet Europe’s increasing private financing needs. “To ensure the continued functioning of these markets, the MiFIR Review must preserve the diversity of trading mechanisms serving different investor needs. Banks, as market makers, are an essential part of this ecosystem, committing their balance sheets to provide liquidity to financial markets. This intermediation is vital to help support market depth and liquidity throughout changing market conditions. “Therefore, we would urge the Parliament to consider key issues affecting the competitiveness of European markets. For example, proposals which impose undue restrictions or expose committed bank liquidity providers to increased risk could have potentially damaging effects on secondary market liquidity and the competitiveness of European markets. “Capital markets are global and we commend Professor Hübner’s approach of ensuring regulatory changes in other jurisdictions are taken into account in the development of the EU framework. Keeping these developments in mind will contribute to strengthening the competitiveness and efficiency of EU markets, ensuring that investors can access optimal trading conditions, which will ultimately benefit EU savers and pensioners.” “We look forward to examining the draft report in further detail and engaging with the European Parliament over the coming months.” In particular, AFME urges the Parliament to consider the following in its deliberations going forward on the MiFIR Review: In equities markets, AFME supports the suspension of the double volume cap, which will ensure EU capital markets remain competitive by bringing this part of the regulation into line with other jurisdictions. We also note that Professor Hübner has proposed an enhanced role for ESMA in establishing a size threshold for Systematic Internaliser (SI) trades that can be executed at midpoint, a minimum quoting size for SIs and a minimum size threshold for use of the reference price waiver by trading venues. AFME cautions that if these restrictions are introduced, it is vital that they are based on sound evidence relating to market quality (i.e. the efficiency of intraday and closing price formation) and the delivery of best execution outcomes for end investors. AFME believes that applying further, unnecessary restrictions to the SI regime will erode the level playing field and inhibit SIs’ efficient facilitation of trading for institutional investors.For example, we note that the EU is a global outlier in pursuing restrictions on midpoint execution. In fixed income markets, while a 4-week price and volume deferral for very large transactions is a step in the right direction, any changes to transparency thresholds and the timing of publication of trading data that have not been based off granular analysis using a comprehensive, accurate data set, risks exposing market-makers to undue risk. The fixed income transparency regime needs to be calibrated to allow these market makers (which are committed liquidity providers) to continue to be able to quote/trade in large sizes as well as in illiquid instruments. The calibration must provide sufficient time to market-makers to hedge or unwind their positions, both in a benign environment, as well as during periods of high market volatility. The level one text should set out the principles which need to be taken into account when determining these calibrations, but the calibration exercise itself, in our view, should be delegated to ESMA on the basis of a thorough impact assessment. Establishing a well-designed consolidated tape for equites and fixed income will promote more attractive and competitive capital markets in EU and contribute to reducing home country bias in the Union, where investors tend to prefer companies from their own Member State. AFME strongly supports the statement that it is essential that the equity tape contains real-time, pre-trade data. We encourage all co-legislators to be ambitious and include pre-trade data in the equities tape at the outset. Making real-time equity market data available to all investors will provide a single view of trading in Europe, which is key for creating a truly pan-European market. Similarly, a post-trade consolidated tape for bonds will provide all investors, regardless of resources or sophistication, with a comprehensive and standardised view of the European fixed income trading environment and will help attract international capital. It is, though, important to note that a bond consolidated tape will not solely address the issues of particularly high market data costs in this market. While the development of a fully-fledged consolidated tape would be a game-changer for the Capital Markets Union, its positive impact would be undermined if the other restrictions to the trading environment, highlighted above, are introduced as this will be to the detriment of investors. On the definition of SI and SI reporting requirements, it is important to reduce uncertainty when it comes to establishing who is registered as an SI and also who should take responsibility for post-trade reporting. AFME supports proposals to introduce a designated reporter regime which will eliminate uncertainty around the question of which counterparty reports a trade for the purposes of fulfilling post-trade transparency requirements. Under the current regime, whish is based on SI designation, market participants have faced unnecessary complexity which has led to duplicative reporting. The application of a qualitative definition for SIs will remove the existing, unnecessary quantitative definition which places an unnecessary burden on EU investment firms. Combined with the decoupling of the SI regime and reporting requirements, this will lead to a framework where firms only register as SIs when it is reflective of their business model. AFME supports this approach. - ENDS -
AFME says ECB climate stress tests provide helpful recommendations as banks continue to develop their climate risk management frameworks
8 Jul 2022
Commenting today on the publication of the ECB’s climate stress test results, Caroline Liesegang, Head of Prudential Regulation and Research at the Association for Financial Markets in Europe (AFME), said: “The ECB climate stress tests have been a welcome learning exercise for banks and supervisors alike. It will be important for banks and supervisors to reflect upon the lessons learned, including refining climate stress testing capabilities and the importance of the ongoing work to enhance the availability and reliability of climate data from the companies which banks finance. “Climate risk analytics and climate risk data is still in its infancy. Harmonised, region-wide scenario exercises and stress tests are therefore important tools to facilitate advancement in the field, but also to create the possibility to learn. We therefore welcome that the results of this exercise are not directly linked to capital requirements. “There is still much work to do to close data gaps, refine scope and scenarios and of course, understand the mechanics of transmission channels into banks’ balance sheets and portfolios. It will take more time before banks are able to quantify climate risks more reliably and to then introduce supervisory or prudential measures if needed. Banks’ success in upgrading their data capabilities will also rely on corporate disclosure, which is in the pipeline through the Corporate Sustainability Reporting Directive (CSRD) and internationally through the International Sustainability Standards Board (ISSB). “Banks have an essential role to play in mitigating any risks that could arise from climate-related risks and in supporting the transition towards a green economy. While AFME is supportive of horizontal supervisory analysis, it is important to recognise – as the ECB stress test results show – that banks’ balance sheets are generally representative of the real economy sectors and regions they finance and it therefore remains essential for governments to continue to define clear transition pathways for sectors of the economy as they transition to Net Zero. “In order to support the development of climate risk analytics and stress tests, AFME’s member banks will continue to take action to address data and analytical shortcomings, both at global and European level. Risk management frameworks have evolved in recent years in order to integrate climate risk more effectively, though the lending process is still very much reliant on qualitative, often not comparable information. Banks have started to amend their strategic business and capital planning to address potential over-reliance on greenhouse gas intense sectors. Yet there is much more to do. Our members are currently in the process of defining data collection templates, including a suitable data processing framework for corporates and SMEs, which aims at closing client information gaps in a coordinated fashion across leading EU and global banks. AFME will continue to engage and facilitate the development of the tests going forward to ensure a meaningful transition of the European banking system. “AFME will be reviewing the results and exercise closely with members and will provide further analysis in the coming months.” - ENDS -
AFME welcomes agreement on the Markets in Crypto Assets Proposal(MiCA)
1 Jul 2022
Commenting on the provisional interinstitutional agreement on the Markets in Crypto Assets Proposal (MiCA) reached between the French Presidency of the Council of the European Union and the European Parliament, James Kemp, Managing Director at the Association for Financial Markets in Europe (AFME), said: “MiCA is an ambitious legislative proposal to create EU-wide minimum requirements for all crypto-assets issuers and service providers. This will bring regulatory certainty, reduce fragmentation and underpin the development of a robust and well-functioning market. “In particular, AFME welcomes the pragmatic approach taken to include decentralised autonomous organisations (DAOs) and non-fungible tokens (NFTs). This is a positive development that will future-proof the EU’s regulatory framework and help it to evolve to meet the challenges presented in this rapidly evolving space, while maintaining alignment with existing EU standards and guidelines. “Amid rapid technological change and significant market innovations, the rationale for MiCA has become more important than ever for the EU. Despite the fact a provisional agreement has been reached, the completion of MiCA will still take several years due to the Regulatory Technical Standards (RTSs) underpinning the legislation. “As MiCA is finalised, AFME continues to advocate for further legal certainty on the requirements imposed on custodians of crypto assets, and, in particular, to clarify the difference between liability in cases of negligence and misconduct, and extraneous events (such as a nation state hack), which may be beyond a custodian’s control. The final provisions on liability should ensure that a proportionate and balanced approach is adopted. “Going forward, it is crucial that MiCA takes into account the broad global context of digitisation, ensuring that the EU remains open to global sources of innovation, standards and markets.” Specifically, AFME: Stresses that further clarity should be provided for custodial liability arrangements. A balanced and proportionate approach to assessing liability is key to ensure customers and clients are not driven towards unregulated solutions or self-custody, ultimately putting them at greater risk of loss, and reducing the ability for authorities to monitor and mitigate financial crime. AFME believes additional language is required to clarify what is “attributable” to custodians (i.e., losses caused by ‘wilful misconduct or gross negligence’) to ensure alignment with the service standards applicable to traditional assets. Welcomes the fact that the provisions for Decentralised Autonomous Organisations (DAOs) have become more proportionate and risk-based. The proposed overall exclusion of so-called “decentralised activities” risked creating a gap in the application of MiCA, leading to risks to financial stability and potential knock-on impacts. We thus welcome the sensible approach taken by the co-legislators which only excludes activities provided in a fully decentralised manner, without any intermediary, which significantly reduces risks for investors. Also welcomes the approach taken on Non-Fungible Tokens (NFTs) to ensure that any NFTs that are fungible in some form or not fully unique, will be covered by MiCA. An outright exclusion of NFTs could have a serious impact on financial stability and investors. Welcomes the balanced approach adopted on the environmental impact of crypto-assets which looks at treating crypto-assets in the same way as other asset classes, by including them in the EU Sustainable Finance Taxonomy. AFME’s members are committed to supporting the transition to a sustainable economy and strongly support the further development of sustainable finance. The financial sector plays a crucial role in underpinning the transition to zero greenhouse gas emissions, notably by helping to allocate capital and providing long-term investment in ways that are consistent with achieving key climate objectives. Encourages further considerations to be given to how the final MiCA text covers crypto-currencies to ensure some are not excluded from the regulatory perimeter, which could expose investors to significant risks. - ENDS - Notes to Editors: Background: Following the European Commission’s (EC) legislative proposal for the Markets in Crypto Assets proposal for the Financial Sector (MiCA) on September 24th, 2020, the European Parliament (EP) and the Council have been negotiating their respective amendments in support of the finalisation of the proposal and its forthcoming implementation. Interinstitutional negotiations (known as ‘trilogues’) have been taking place since the beginning of the year with the aim to finalise the legislation before the summer.
AFME recommends co-legislators focus on original objectives of EU Green Bond Standard
27 Jun 2022
In light of the ongoing interinstitutional negotiations (trilogues) on the EU Green Bond Standard (EU GBS) proposal, the Association for Financial Markets in Europe (AFME) has today published a paper highlighting 6 priorities to fulfil the objectives of the EU GBS framework and to support the establishment of an effective and successful market for EU Green Bonds. Oliver Moullin, Managing Director for Sustainable Finance at AFME, said: “The EU GBS has the potential to play an important role in stimulating the issuance of green bonds in the EU amid challenging market conditions. Delivering on the proposal should therefore be a priority for the upcoming Presidency of the Council. We recommend that co-legislators keep the discussions focused on delivering a product-based, voluntary gold-standard for green bonds that is attractive to both issuers and investors.” The French Presidency of the European Council commenced the final phase of negotiations in June and talks will continue over the second half of the year under the auspices of the Czech presidency. Among the key issues for discussion are the scope of the regulation and additional entity-level requirements. This comes after the Parliament proposed introducing requirements for all issuers of sustainable bonds in the EU and to add entity-level disclosure requirements. Moullin continued: “The Parliament’s report substantially extends the coverage of the label, which would capture all bonds marketed in the EU as environmentally sustainable. This new approach is a meaningful shift from the original objectives of the proposal. We are concerned that it would adversely impact the EU green and sustainable bonds market and therefore undermine the progress in developing sustainable finance in the EU. We therefore strongly recommend that co-legislators maintain a product-based approach to deliver on the EU GBS objectives.” To support the ongoing negotiations, AFME’s paper highlights the following six priorities: 1. Focus on criteria to use the EU Green Bond designation without threatening the continued growth of the market for sustainable bonds. 2. Maintain the Standard’s voluntary nature and its strong link with the EU Taxonomy Regulation. 3. Develop a product-based framework, avoiding complex disclosure requirements at the issuer level. 4. Ensure that eligible bonds maintain their designation until maturity, after changes to the Taxonomy criteria. 5. Ensure the standard works for securitisation and supports the development of green securitisations. 6. Ensure sufficient time for each periodic review of the legislation, and maintain its voluntary nature. – Ends –
Rebecca Hansford
AFME comments on CRR3 draft report
31 May 2022
The Association for Financial Markets in Europe (AFME) welcomes today’s publication of the draft report by Rapporteur Jonas Fernandez, which represents an important milestone in the legislative negotiations on the banking package which was published by the European Commission last October in order to implement the final 2017 Basel III rules. Caroline Liesegang, Head of Prudential Regulation at AFME, said: “European banks have raised hundreds of billions in equity capital since the financial crisis,and their resilience has been proven during recent economic shocks. The co-legislators should therefore uphold their commitment to avoid any significant further increases in capital requirements, which could have negative consequences for lending and the broader economic recovery. While the Commission proposals include some transitional measures to allow the market to adjust, AFME’s impact analysis suggests that capital increases could still be material and the legislative texts need to be reviewed with care.” In particular, as the Parliament continues its examination of the proposals, AFME recommends that it considers targeted adjustments in a number of areas. These include allowing flexibility on the duration of the above-mentioned transitional measures and avoiding a disproportionate impact on end-users’ ability to access a broad range of important services like trade finance, hedging and trading. It is important that certain aspects of the package, in particular those which are most relevant for capital market businesses and global in nature are implemented simultaneously and consistently across jurisdictions. In this context, we encourage the Parliament to support the delegation of powers to the European Commission as the most efficient tool for ensuring international alignment. Finally, we welcome the rapporteur’s initial support for the application of the Output Floor at the consolidated level. This is important to avoid undue capital impacts and fragmentation in Europe, and we call on the Parliament to uphold this approach in the course of their work to finalise the package.
AFME & Paris EUROPLACE call for action to ensure Securitisation can support the economic recovery and green and digital transitions
31 May 2022
Following a High-Level Forum organised by the Association for Financial Markets in Europe (AFME) and Paris EUROPLACE discussing the role that securitisation can play in helping to meet Europe’s financing needs, the two organisations have jointly called for the Commission and co-legislators to step up efforts to finalise the European securitisation framework and make it fit for purpose. This event takes place ahead of a key report due in the autumn from the European Supervisory Authorities (ESAs), which have been tasked with advising the Commission on how the prudential framework has performed relative to its stated purpose and the objective of revising EU securitisation markets. AFME and Paris Europlace urge the ESAs not to miss this opportunity to introduce more proportionality and risk sensitivity in the regulatory framework, so that European savings can be mobilised to finance the European economy. This must include targeted measures to revive the market, including a recalibration of capital charges, and better treatment for issuers and investors. Adam Farkas, Chief Executive at the Association for Financial Markets in Europe (AFME), said: “We are concerned that time is running out in the current legislative cycle to effect the necessary changes to make European securitisation an attractive asset class and to halt the steady decline of EU ABS. Securitisation is being held back by a regulatory framework that was developed in the aftermath of the global financial crisis and is heavily coloured by experiences in the US sub-prime mortgage market and products which no longer exist or have been prohibited by the European regulatory framework. In order for securitisation to reach its true potential in funding the green transition, supporting growth in the digital economy and providing private capital to businesses, an understanding of the crucial role that EU capital markets must play in functioning EU ABS markets is crucial in driving targeted adjustments to EU prudential regulation.” Arnaud de Bresson, Managing Director, Paris Europlace, said: “We need a more efficient and competitive securitisation framework in Europe because it can unlock funding to help support Europe’s economic recovery and its huge financing needs in light of the war in Ukraine and in the post-Covid environment. European authorities should consider securitisation as a high priority in the context of accelerating the implementation of the European Capital Markets Union, and more especially due to the over reliance on bank financing in Europe and the need to develop new financing channels through capital markets. The review of investor needs and attracting investors via the necessary simplification of the rules must be a priority.” Jean Lemierre, Chairman of the Board of Directors at BNP Paribas, said: “As a large European bank, BNP Paribas is highly committed to support the growing financing needs of the European economy. Banks are best placed to originate and analyse the risk of those financings, given their credit risk expertise and local presence. But, given the impact on their capital requirements, they need tools to transfer part of these assets to investors. Securitization could be part of the solution, if existing regulatory hurdles are addressed.” During the Forum, speakers discussed why securitisation is important - to support the financing of the European economy in light of the huge financing needs deriving from the war in Ukraine and in the post-Covid economic recovery, as well as supporting the green and digital transition. Industry insiders referred to the importance of private securitisation through bank lending to enable incumbent corporates to diversify their funding base and for disruptors to scale up their businesses prior to accessing capital markets. They invariably saw securitisation as an effective tool to transition their businesses to contribute to the green economy. Over the course of the day, panellists also discussed the need for targeted regulatory reforms in both EU securitisation regulation and the Prudential Frameworks. - ENDS - AFME Contact Rebecca Hansford Head of Media Relations [email protected] +44 (0)20 3828 2693 +44 (0)7825 081 686 Paris EUROPLACE Contact Arnaud de Bresson, CEO [email protected] +33 6 09 26 18 08 About AFME: AFME (Association for Financial Markets in Europe) advocates for deep and integrated European capital markets which serve the needs of companies and investors, supporting economic growth and benefiting society. AFME is the voice of all Europe’s wholesale financial markets, providing expertise across a broad range of regulatory and capital markets issues. AFME aims to act as a bridge between market participants and policy makers across Europe, drawing on its strong and long-standing relationships, its technical knowledge and fact-based work. Its members comprise pan-EU and global banks as well as key regional banks, brokers, law firms, investors and other financial market participants. AFME participates in a global alliance with the Securities Industry and Financial Markets Association (SIFMA) in the US, and the Asia Securities Industry and Financial Markets Association (ASIFMA) through the GFMA (Global Financial Markets Association). For more information please visit the AFME website: www.afme.eu. Follow us on Twitter @AFME_EU About Paris EUROPLACE: Paris EUROPLACE is the Paris financial services-led body, in charge of developing and promoting Paris as an international financial center. Paris EUROPLACE is chaired by Augustin de ROMANET, Chairman and CEO, Aéroports de Paris (ADP). Paris EUROPLACE brings together all financial services industry stakeholders and is the voice for its 400+ members, corporate issuers, investors, banks and financial intermediaries, professional associations, attorneys and accountants, consulting firms, etc., as well as the financial market authorities. For more information please visit the Paris EUROPLACE website: https://www.paris-europlace.com/en. Follow us on Twitter @europlace
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Rebecca Hansford

Head of Media Relations

[email protected]