The Association for Financial Markets in Europe (AFME), in collaboration with eleven other European and international organisations, has today published the seventh edition of the “Capital Markets Union – Key Performance Indicators” report, tracking the progress of Europe’s capital markets against nine key performance indicators and analysing the progress over the past seven years. Adam Farkas, Chief Executive of AFME, said: “Our latest CMU KPIs report demonstrates that EU capital markets continue to face major structural challenges. We are lagging behind other regions across most key areas, including access to finance for corporates and SMEs, FinTech ecosystems, and market liquidity.” “To ensure the EU remains competitive globally, we need bold reforms to better mobilise capital and unlock private sector funding. An integrated and more efficient capital market can fund the initiatives critical to Europe’s economic competitiveness.” Among the key findings of the 2024 report on European capital markets’ performance: EU Capital Markets Falling Behind: Despite some cyclical gains, the EU lags behind the US, UK, and China in most key indicators, such as access to capital, global interconnectedness, and market liquidity. The EU’s capital markets remain fragmented, undermining economic competitiveness on a global scale. ESG Leadership, but Growth Slowing: The EU continues to lead in sustainable finance, with ESG bonds accounting for 13% of total bond issuance in 2024, ahead of the US and UK. However, growth in EU ESG issuance has not kept pace with growth in non-ESG issuance, with the overall share of ESG issuance down from 15% in 2021, signalling a potential plateau. Deteriorating Intra-EU Integration: The report highlights a worrying decline in financial integration within the EU, a trend also noted by the European Central Bank. This fragmentation threatens the EU's overall financial stability and its ability to compete globally. EU Securitisation Market Remains Underdeveloped: The EU securitisation market continues to trail behind those of the US, UK, and Australia. Currently, only 1.9% of outstanding EU loans are transformed into securitised vehicles or loan sales, compared to 7% in the US, 2.8% in Australia, and 2.2% in the UK. Issuers from only 9 of the 27 EU member states utilised securitisation as a source of funding in the first half of 2024. Widening Market Disparities: Northern European nations, such as Luxembourg and the Netherlands, boast deeper capital markets and greater access to finance, while countries in Eastern Europe lag behind. This disparity poses a significant challenge to the EU’s ambition for an integrated capital market. EU FinTech Ecosystem Stalling: Private investment in EU FinTech remains lower than in the US and UK, limiting the region’s progress in digital finance. However, the EU has taken a leadership position in the issuance of tokenised bonds, accounting for 20% of the global market in this emerging area. Addressing the Competitiveness Gap One of the most pressing concerns highlighted in the report is the EU’s annual funding gap of €800 billion. The funding is required for key areas like digitalisation, infrastructure and sustainability all of which are essential for boosting the EU’s long-term competitiveness. Unlocking the potential of capital markets will be key to addressing this shortfall. The report stresses the importance of mobilising household savings, with €11 trillion currently held in low-yielding EU cash and bank deposits. Shifting some of these funds into productive investment vehicles will be essential to strengthening the EU’s capital market ecosystem. Without ambitious structural reforms, the EU risks further market fragmentation and a decline in global market capitalisation. The report warns that while the EU has the scale and resilience to compete with the US and China, significant reforms are needed to overcome internal market fragmentation and to unlock Europe’s full potential. The report was authored by AFME with the support of the Climate Bonds Initiative (CBI), as well as European trade associations representing: business angels (BAE, EBAN), fund and asset management (EFAMA), crowdfunding (EUROCROWD), retail and institutional investors (European Investors), publicly quoted companies (EuropeanIssuers), stock exchanges (FESE), venture capital and private equity (InvestEurope), private credit and direct lending (ACC) and pension funds (PensionsEurope). – Ends –

The Association for Financial Markets in Europe (AFME) has today welcomed the publication of the Financial Conduct Authority’s Policy Statement (PS24/14) for improving transparency for bond and derivatives markets. The FCA model developed after active consultation with the market now better optimises timely transparency, as well as facilitating the adequate protection of investors and liquidity providers from the very real risks associated with overly prompt dissemination of sensitive information for very large or illiquid trades. AFME notes that the FCAs revised approach to bond post-trade transparency is a vital first step on the road to a well-functioning and commercially successful consolidated tape. Victoria Webster, Managing Director of Fixed Income at AFME, commented: “We welcome the publication of the FCA’s policy statement for improving transparency in UK bond markets. We support the FCA’s view that the UK’s new bond transparency regime will do much to assist price formation and proof of best execution while protecting the ability of liquidity providers to appropriately manage the risks they take when dealing in larger sizes and in illiquid bonds. We have long acknowledged that establishing the correct balances between simplicity versus nuance, and sufficient transparency versus adequate protection for market makers, is crucial for a successful transparency regime. We believe the FCA has made significant progress towards accomplishing this challenging task”. – Ends –

The Association for Financial Markets in Europe (AFME) welcomes the opportunity to respond to the European Commission’s targeted consultation on Artificial Intelligence (AI) in the financial sector. James Kemp, Managing Director and Head of Technology and Operations at AFME, said: “While traditional AI techniques remain relevant, recent advancements in Generative AI presentnew opportunities for value creation, particularly in service delivery, software development, and operational efficiencies. Many of the risks associated with AI applications are not new and are commonly encountered with the use of technology. In response, our members have developed mature risk management frameworks, often utilising existing 'Three Lines of Defence' models. These frameworks are designed to align with existing regulatory requirements, standards, and guidance, ensuring compliance with sectoral regulations and supervision. Their goal is to safeguard investor protection, promote financial stability, and support well-functioning markets. Consequently, AFME members do not see that there would be additional benefit gained towards achieving these goals from additional financial services regulation for AI. Among the key points from AFME’s consultation response are: Transformative Potential: AFME members widely recognise AI as transformative for the wholesale banking sector, with significant benefits across multiple areas. Advances in Generative AI are seen as promising for unlocking new value opportunities. Regulatory Perspective: AFME does not advocate for additional AI-specific regulations, as existing regulatory frameworks already encompass AI applications. Members have implemented comprehensive governance and controls driven by existing regulations, and are adapting these frameworks to cover new use cases enabled by Generative AI. EU AI Act: Regarding the EU AI Act, AFME members express a preference for industry-agnostic principles rather than sector-specific guidance. They seek clarity on implementation details applicable across sectors, believing that this approach will facilitate effective regulation without unnecessary sectoral distinctions. – Ends –

The Association for Financial Markets in Europe (“AFME”) welcomes the publication of the near-final policy statement on the remaining elements of consultation paper (CP) 16/22 - Implementation of the Basel 3.1 standards, which includes credit risk, the output floor, and reporting and disclosure requirements. Caroline Liesegang, Head of Capital and Risk Management at AFME, commented: “AFME remains a committed and strong supporter of effective and sustainable financial markets internationally, which includes ensuring that banks develop and maintain stable capital and funding structures. This is essential to facilitate client financing, investing and hedging for the underlying economic activities that are critical for securing and supporting long-term economic growth and prosperity. The impact of the UK's overall implementation of the Basel 3.1 package is expected to result in an increase in Tier 1 capital contained at 1%, which is important in allowing banks to continue funding the UK economy while remaining appropriately and robustly capitalised. The UK is one of the most globally connected financial centres in the world and the publication of the near-final policy statement on the implementation of the remaining elements of the Basel 3.1 package represents an important step towards achieving, and in support, of these objectives”. Overall, these near final policies strike a reasonable balance between international alignment and taking into account the impact of these policies on the UK’s competitive standing internationally. We welcome, and are encouraged by, the efforts of the Prudential Regulation Authority (PRA) to consult with the industry on its proposals and the feedback incorporated to facilitate the development of globally acceptable and leading practices. In the interest of global consistency and alignment with other major banking jurisdictions, we welcome the PRA's decision to delay the application of the overall UK rules to 1 January 2026. We recommended that the PRA adopt this approach in order to avoid regulatory fragmentation and unnecessary costs to the industry. We strongly welcome the PRA's approach to a more risk-sensitive set of conversion factors (CF), particularly noting the reduction of CF for transaction-related and trade finance contingent items to 20%, which will enhance the ability of AFME members to support UK trade objectives. We also support the application of the output floor at the highest level of consolidation on a consistent basis for all groups, and its application to minimum capital requirements set through Pillar 1 and internationally agreed capital buffers. We welcome the adjustments to SME and infrastructure lending and support the decision to allow firm-specific adjustment to Pillar 2A to mitigate overall capital impact, as well as the adjustments applied to the definition of SME and risk weights towards commercial real estate collateral and project finance. This will ensure that UK Banks remain competitive internationally and help support economic growth and infrastructure spending across the country. The PRA's revision to the calculation of the output floor will allow for more comparability across the industry, which we welcome on grounds of transparency for shareholders and investors. Finally, we note the increased clarity around reporting and disclosure requirements, and adjustments to reflect the underlying policy standards. – Ends –

The Association for Financial Markets in Europe (AFME) welcomes the recommendations of the report published today on “The future of European competitiveness”. Commenting on the report, AFME’s CEO, Adam Farkas, said, “AFME agrees with Mr. Draghi that the mobilisation of private and public finance at scale will be essential to securing the future of Europe’s growth and competitiveness on the global stage and we support many of the recommendations set out in the report to achieve this. Notably, we welcome the report’s recognition of the need to deliver a genuine Capital Markets Union. In this context, we support a possible evolution of ESMA’s role and consider that changes to its governance structure along the lines suggested by Mr. Draghi will be critical to promoting European capital market objectives. We also share the view that reforming the EU post-trade environment should be an area of priority. Its current fragmentation along national lines creates complexity and costs for investors and issuers which affects the attractiveness of EU capital markets. Moreover, we strongly support many of Mr. Draghi’s recommendations to, in tandem with growing our capital markets, increase the financing capacity of the banking sector. In particular, we welcome his call to complete the Banking Union by creating – at a minimum – what he calls a “separate jurisdiction” for European banks with substantial cross-border operations that would be “country blind” from a regulatory, supervisory and crisis management perspective. We also welcome his recognition that securitisation needs to be revived and that a number of regulatory changes are necessary to bring this about. Many of his suggestions for such change echo those set out by AFME in our own recommendations for the incoming Commission on this topic (see AFME’s paper ‘EU Securitisation back on track’). Finally, we welcome the suggestions to simplify and consolidate existing EU funding programmes and to boost the EIB Group’s capacity to help attract further private capital to fund start-ups, scale-ups, corporates and projects with higher levels of risk but also higher potential for innovation and growth. We now look forward to seeing how the next Commission will put these ideas into practice and to working with the Commission and other EU institutions to help support these ambitions.” – Ends –

The Association for Financial Markets in Europe (AFME) is pleased to provide its response to the initial set of consultations released by the European Securities and Markets Authority (ESMA). These consultations address three key areas: Bond Transparency, Consolidated Tape Provider and Reasonable Commercial Basis. Victoria Webster, Managing Director, Fixed Income at AFME, said: “AFME supports the objective of enhancing transparency in European bond markets, as it can lead to improved pricing and market participation. However, it is imperative the framework is carefully calibrated, with a strong focus on data analysis, particularly for less liquid segments of the bond market.” April Day, Head of Equities (ECM, Trading and Post Trade) at AFME, said: “AFME supports ESMA’s efforts to bring more rigorous scrutiny to market data pricing. Market data is essential to any firm offering wholesale financial services. Applying the requirements for reasonable commercial basis in a more consistent manner will help to ensure that market data clients in the EU get a fair deal for the data they buy, but enforcement will only be effective if the fundamental rules are drafted precisely. We encourage ESMA to be mindful of market participants’ feedback on this consultation paper – they have suggested amendments to the drafting of the law to ensure that regulators will have a sound legal basis to prevent discriminatory pricing.” In more detail: On RTS 2 Bond Transparency: AFME acknowledges the complexity of ESMA’s task in calibrating bond transparency thresholds. While we appreciate that ESMA's data analysis aims to support achieving an adequate level of transparency, it overlooks similar analysis of undue risk; this will have a detrimental impact to the delicate balance between transparency and liquidity with wider, negative knock-on effects on investors and issuers. AFME are specifically concerned about the treatment for illiquid bonds which results in excessive immediate transparency for many illiquid bonds. AFME have expanded on their previous analysis based on Average Daily Volume (ADV) of bonds to calculate the average time it takes for a market maker to trade out of risk. They have presented a more balanced and data-driven framework which results in high levels of immediate transparency for bond markets, supporting ESMA’s goals while safeguarding market liquidity and competitiveness. On Consolidated Tape Provider: Consideration needs to be paid to the different requirements across asset classes, meaning a ‘one-size-fits-all’ approach to minimum technical requirements is not appropriate across bonds, equities and derivatives. For example, unnecessarily aggressive latency threshold for a bond CT which would disproportionately increase costs to users. AFME has previously advocated against revenue distribution for data contributors to a bond CT. The voluntary approach that has been introduced should be just that and should not be awarded any special weighting in a tender application and should not be a determinant for progressing (or not) bond CTP applicants to the next stage of the selection process. On Reasonable Commercial Basis: High market data costs have been a longstanding concern for market participants despite the requirement in Article 13 of MiFIR for market data providers to make pre- and post-trade data available to the public on a reasonable commercial basis and to ensure non-discriminatory access to that data. Legislators in the EU recognised this problem and set out to address it by revising MiFIR. AFME recognises that the previous approach of issuing non-binding guidelines on reasonable commercial basis was ineffective. AFME supports the new approach of strengthening the guidelines and converting them into legal obligations so that market data providers will not be able to engage in price discrimination (charging clients according to the value that the data represents to individual clients). In AFME’s view the draft RTS is a step toward ensuring that reasonable commercial basis requirements are applied consistently across the EU. However, while acknowledging the progress that ESMA has made, AFME continues to be concerned that the drafting of the RTS will undermine its objectives. We have proposed several amendments to the draft RTS to address gaps that will allow discriminatory pricing to persist. – Ends –

The Association for Financial Markets in Europe (AFME) today published roadmaps for “Scaling Capital Markets based on Distributed Ledger Technology (DLT)” focused on European Sovereign, Supranational and Public Agency (SSA) bond issuers and EU and UK policymakers and regulators. The last years have seen significant acceleration in the development of DLT-based capital markets, with an uptake in DLT-based bond issuances by SSA issuers, as well as increasing evidence of demonstrated liquidity and benefits throughout the security lifecycle. The global issuance of DLT-based SSA bonds for 2024 has already exceeded 1bn USD, more than any other previous year. International and European SSA and government bond issuers have led this charge, and the market ecosystem is growing with a growing number of banks, investors, issuers, and other market participants adopting DLT. The origination and distribution processes for DLT-based issuances do not differ in any significant way from those for traditional issuances, as underlying economic risks of issues are the same. However, the use of DLT can offer transformative and tangible benefits compared to traditional infrastructures. These include innovation in capital markets through the possibility of programmable settlement, more cost-effective management of issuances through the automation of work flows and corporate actions, as well as reduction of single-point-of-failure risk in financial market infrastructures. Ultimately, these benefits can reduce costs for investors and improve the efficiency and resilience of European capital markets, and even enhance liquidity. In this context, AFME encourages European SSA issuers to consider the opportunities of leading and shaping the capital market transformation towards DLT. In parallel, policymakers play an equally important role in ensuring that the regulatory framework fully supports the deployment of DLT where appropriate in the financial sector by reviewing current obstacles across the security lifecycle and supporting digital cash solutions. AFME’s new reports include: Scaling DLT-based SSA and Government Bond Markets – A Roadmap Strategy for European issuers [link]: This roadmap lays out a phased strategy for issuers to initiate and scale DLT-based SSA and government bond issues. It sets out how DLT can help SSA issuers achieve their mandates and objectives and provides recommendations on concrete steps available to issuers addressing experimentation, scaling, and market maturity. Scaling DLT-based Capital Markets – A Policy Roadmap for the EU [link] and UK [link]: This 8-point plan focuses on specific policy and regulatory changes that are necessary to enable the development and growth of DLT-based capital markets by SSA and corporate issuers, with a focus on 1) updating the sandbox regimes in line with market momentum and 2) introducing a definitive permanent framework for DLT-based securities to maximise their economic functions, attractiveness to investors and technological benefits. Commenting on scaling DLT-based capital markets and an enabling policy framework, James Kemp, Managing Director, Global FX Division, says: “The EU and UK both have a unique opportunity to further develop a permanent policy framework that supports the development of DLT-based capital markets and to shape DLT-based market practices and regulatory standards globally, for the benefit of issuers and investors alike.” Victoria Webster, Managing Director, Fixed Income, says: “Public-sector issuers of debt instruments in Europe - sovereign, supranational and agency issuers – can play a key role in the process of scaling DLT-based capital markets through increasingly deploying DLT solutions in their issues.” – Ends –

The Association for Financial Markets in Europe (AFME) today published a report titled “Digital Finance in the EU – Priorities for fostering resilient, innovative and competitive financial markets”, presenting its recommendations for supporting the development of capital markets and increased access to finance for the real economy through new technologies. The report focuses on the following main areas: Unlocking the benefits of tokenisation and DLT technologies in capital markets: AFME highlights how the development of Distributed Ledger Technology (“DLT”) holds promise for unlocking efficiencies and driving growth. Payments, settlement, and securities lifecycle events may be carried out with greater safety and more efficiency; access to capital markets, through tokenised securities/assets, may be expanded to a broader set of participants. At scale, these developments would benefit the real economy. Supporting an effective data ecosystem: The EU’s proposed Financial Data Access (FiDA) framework, if designed correctly, has the potential to enhance the way banks operate, encourage innovation (including across sectors, if some provisions are met) and support a more effective and efficient data ecosystem. However, a clearer definition of the scope, stronger safeguards to ensure a level playing field and a gradual implementation are key preconditions for a workable framework. Promoting a secure and resilient EU digital finance sector: Work to ensure a successful and proportionate implementation of DORA will remain central in the coming months. Leveraging the opportunities from the use of artificial intelligence (AI): AI has the potential to transform financial services and capital markets, to make them safer, more efficient, accessible, and better tailored to consumer needs. At the same time, these opportunities require careful consideration of new risks and challenges introduced by a growing use of AI. Commenting on the report, Stefano Mazzocchi, Managing Director, Advocacy at AFME, said: “Banks have been at the centre of a profound digital transformation, a process which will continue and accelerate in the coming years. As the EU begins a new policy cycle, digitalisation of finance has the potential to support the development of capital markets. By increasing efficiency, lowering costs, boosting transparency and availability of information and allowing greater access to data, digital technologies can support the CMU project and allow greater access to capital markets both for entrepreneurs and institutions looking for funding, and generate returns for investors. With its digital finance strategy, the EU has been an early mover in this area and we look forward to continuing engagement and dialogue with all stakeholders to facilitate digital innovation”. -Ends-

The Association for Financial Markets in Europe (AFME) welcomes yesterday’s adoption by the European Commission of the Delegated Act to delay the implementation of the EU’s market risk framework by one year to 1 January 2026. AFME supports the EU Commission’s decision given the need for further clarity on both substance and timing, and the need for international alignment. Caroline Liesegang, Managing Director, Head of Capital & Risk Management, Sustainable Finance and Research at the Association for Financial Markets in Europe (AFME) said: “Delaying the implementation of the market risk framework (FRTB) was a necessary decision in light of the ongoing lack of clarity on both content and timeline in other major jurisdictions. It is important to avoid unnecessary regulatory fragmentation when possible. Today’s decision underlines that the European Commission firmly supports international alignment. “AFME also commends the European Commission’s complementary Q&A as it takes into consideration and clarifies the implications a delayed implementation would have on other elements of the EU’s banking regulatory framework (e.g. CRR3 reporting and disclosure requirements and the calculation of the Output Floor). These elements are intrinsically linked to the market risk framework and could create significant challenges for banks if not addressed accordingly. “However, further work remains to be done. It is crucial that the EU’s implementation of the Trading Book/Banking Book boundary (TB/BB boundary) is consistent with the timeline invoked by the delegated act to delay both the FRTB Standardised Approach (SA) and the FRTB Internal Model Approach (IMA) capital calculations and therefore, we welcome the guidance issued to the European Banking Authority (EBA) to instruct supervisors to delay the implementation of the TB/BB boundary as they have done previously. We are, however, disappointed in the Commission’s conclusion not to address the credit valuations adjustment framework (CVA) and the profit and loss attribution test (PLAT). In our view, given the interdependence of the various regulatory frameworks, an aligned timeframe of implementation and transition is important to avoid operational inconsistencies. We look forward to a continuing dialogue with the Commission and the EBA as these issues evolve and as the broader international picture becomes clearer.” – Ends –

The Association for Financial Markets in Europe (AFME) today published a paper titled ‘Priorities for UK Financial Markets’, which outlines AFME’s vision for the UK’s capital markets, focussing on three key elements: the overarching principles for better financial regulation; tackling current issues; and revising the relationship between the UK and the EU. AFME welcomes the new Government’s commitment to UK capital markets and supports the view that the UK can only achieve significant economic growth with well-functioning, deep and liquid capital markets. AFME outlines principles that will help create markets that serve the needs of companies and investors alike, and also explores the specific challenges and opportunities that lie ahead, including the implications of recent regulatory developments. Finally, AFME considers a key ambition of the government: revising and shaping the relationship between the UK and EU. AFME and its Members take a substantial interest in the future relationship between the UK and EU, wishing to see both markets develop in tandem and address collaboratively the global issues that both jurisdictions face. AFME would like to see the new Government continue to build on the UK-EU Financial Services memorandum of understanding (MoU). AFME and its members await the first Budget of the new Government, and in its paper, AFME outlines how a stable and favourable tax and investment environment in the UK can help both the financial sector and the wider economy. The new Government should focus on encouraging long-term investments for the net-zero transition and consider removing the Stamp Duty Reserve Tax (SDRT) to promote capital market investment. In conjunction with its policy paper on Priorities for UK Financial Markets, AFME will also publish an accompanying paper outlining its priorities for sustainable finance given the emphasis that the new government has placed on the transition to net-zero. Commenting on priorities for the UK Government, AFME’s CEO, Adam Farkas, said, “The Government should aim to ensure that the regulatory framework for financial services is clear, keeps business compliance costs proportionate, and ensures high standards across UK markets. AFME and its members would welcome, under the new Government, a clear focus on some of our main policy areas including, a rethink on the proposed FCA guide to enforcement, the recognition that the financial sector’s ability to support the transition will depend largely on whether the conditions are in place to enable the real economy to transition, a stable and favourable tax environment, a commitment to developing DLT based securities and a joined-up approach to accelerated settlement with the EU and Switzerland. We would also welcome a renewed conversation around securitisation to unlock lending to SMEs and to help finance the transition to net zero.” – Ends –