Following the agreement by the Council of the EU and Parliament yesterday on the Commission’s low carbon benchmarks proposal, AFME fully supports the two-year extension of the transition regime of the Benchmarks Regulation (BMR), for critical and third-country benchmarks until the end of 2021. AFME welcomes the creation of the two new categories of benchmarks and the transparency introduced for their methodologies (which should nevertheless remain proportionate). On critical benchmarks: “The two-year extension is extremely welcome given the sheer number and variety of financial contracts linked to the two main EU critical benchmarks, EURIBOR and EONIA, which means reform will be immensely complex and much still remains to be done.” On third country benchmarks: “Despite their misleading ‘non-critical’ labelling under the BMR, third country benchmarks, such as non-EU Foreign Exchange spot rates, are widely used by EU financial firms and corporates in hedging commercial activities and investments abroad” “Therefore, this delay is extremely welcome news, particularly given that the January 2020 deadline would have been extremely disruptive to EU financial firms and corporates who would have struggled to perform their economic activities abroad if these benchmarks were prohibited. “During the two-year delay, we would very much welcome a revision of the third country regime under the BMR Review to rectify any unintended consequences.” – Ends –

Following today’s ‘meaningful vote’ in the UK Parliament, Simon Lewis, Chief Executive of AFME, said: “Today’s lack of agreement on the Withdrawal Agreement means that the banking and finance industry still does not have certainty on a transition period, which is vital to ensure an orderly withdrawal process in March 2019.With 73 days to go, time is running out and the continued risk of a no-deal scenario is a growing concern.” “As a result, our members are continuing to implement their contingency planning in order to minimise disruption in a no-deal scenario. Given the continued uncertainty, it is vital that action is taken by the UK, EU and Member States to provide clarity on solutions to address cliff edge risks in a no-deal scenario.” – Ends –

Washington, D.C., 11 January 2019 – New Financial, commissioned by the Global Financial Markets Association (GFMA), has today published a new major industry report, “The New Financial Global Capital Markets Growth Index.” The purpose of the reportis to provide an in-depth review and comparison of national and regional capital markets across the globe in terms of market size, depth, and access to pools of capital. GFMA commissioned New Financial to prepare the report to underscore the role markets can play in supporting sustainable economic growth around the world by diversifying the sources of available funding for companies, improving productivity through more efficient capital allocation and better risk management, increasing the capacity of economies to absorb economic shocks, and funding more sustainable pension systems. The report also identifies challenges and provides recommendations for jurisdictions to develop and expand capital markets as a source of funding and investment. Mark Austen, past CEO of GFMA and CEO of the Asia Securities Industry & Financial Markets Association (ASIFMA), commented: “While the economic and financial system in every economy is unique – and capital markets are at vastly different stages of development – our analysis shows there is huge potential for growth in capital markets around the world should the barriers to their development be adequately addressed by policy makers.” Kenneth E. Bentsen, Jr., CEO of GFMA and President and CEO of the U.S.-based Securities Industry and Financial Markets Association (SIFMA), commented: “Our goal is to provide a comprehensive analysis to identify development gaps and growth opportunities, as well as understand how deeper capital markets and enhanced opportunities for institutional and retail investment correlates with capital formation and job creation.” Simon Lewis, CEO of the Association for Financial Markets in Europe (AFME), commented: “Our joint report highlights that capital markets in Europe are currently punching below their weight when compared with the US and Asia. A big factor in this relative underdevelopment is the fragmented nature of the European economy, which reduces liquidity and raises the cost and complexity of investing. In Europe, reforming the capital markets through the Capital Markets Union (CMU) is therefore a key priority. CMU has the potential to change existing projected growth rates and will be even more important in light of the imminent challenges posed by Brexit.” – Ends –

At the quarterly meeting of AFME’s High Yield Board today, it was agreed that an independent associate group, the “European Leveraged Finance Alliance Investor Group” or “ELFA Investor Group”, would be established. ELFA Investor Group members will remain members of the AFME High Yield Division. They will meet independently of AFME, but it is intended that they will actively cooperate in initiatives to develop further the European leveraged finance market. Existing AFME investor members will continue to be able to engage in the High Yield Division. The ELFA Investor Group will represent the buy-side community within the European high yield and leveraged finance market and will help to promote a transparent, efficient, and resilient leveraged finance market in Europe. It will also act as a forum for engagement with other industry professionals, as well as a knowledge platform to further educate the European high yield and leveraged finance investor community. Sabrina Fox, formerly Head of High Yield for Covenant Review, has been appointed to lead the group during its development stage. Sabrina Fox, ELFA Investor Group,said: “The establishment of the ELFA Investor Group marks the next step for the European leveraged finance markets, as it will allow its members to speak with a single voice in order to foster a deeper and more resilient market for the benefit of all market participants.” Gary Simmons, Managing Director of AFME’s High Yield Division, said: “The high yield investor community is an important part of the European high yield industry and we value its contribution to maintaining a healthy and viable market. AFME currently has many important high yield investor members and we are delighted to announce the creation of this independent investor group which will allow all parties to continue making a positive contribution to market growth and efficiency as part of the mission of the AFME High Yield Division.” – Ends –

Following today’s Brexit Communication from the European Commission, Simon Lewis, Chief Executive of AFME said: “We welcome today’s confirmation that the Commission has adopted temporary equivalence decisions for UK CCPs and CSDs. This is a very important step to enable continued access for EEA firms to clearing and settlement services in a no deal Brexit scenario. “While this addresses a significant risk, it is important for further action at EU and national level to mitigate against other risks and put in place cooperation arrangements between the EU and UK regulators. In particular we encourage Member States to clarify their approach to the continued servicing of existing uncleared derivatives contracts in a no deal scenario.” – Ends –

The Global Financial Markets Association (GFMA) and the International Capital Market Association (ICMA) have today published a report, The GFMA and ICMA Repo Market Study: Post-Crisis Reforms and the Evolution of the Repo and Broader SFT Markets, which assesses the impact of post-crisis regulation on the functioning of the global repo and securities financing transactions (SFT) markets. The report provides a broad account of the global repo market’s operation during the crisis and analyses the subsequent regulatory reforms. It finds that they have had a profound impact on banks’ SFT businesses with a significant increase in capital requirements, which could detrimentally impact the securities lending market and the way the repo market functions under stressed scenarios. This assessment is followed by an analysis of how changes in the cost of SFTs have affected banks’ product offerings and client choices, as well as how volatility in some repo markets has impacted the selection of IBOR (Interbank Offered Rate) replacement rates. The report includes primary research in the form of qualitative and quantitative analysis. The qualitative analysis consists of a survey on the current and future states of the repo markets, completed by 33 senior front office staff from major dealer banks across the globe. The quantitative impact study (QIS) assesses the impact of the proposed minimum haircuts for SFTs, which were introduced as part of the Basel III framework in 2017 in order to limit leverage banks provide to the non-bank sector. The QIS aims to establish if this framework will lead to unintended consequences by further contracting banks’ SFT markets participation. Kenneth E. Bentsen, Jr, CEO of GFMA, said: “Repos and other SFTs play a critical role in the global financial system and support the real economy in many different ways. Therefore, it is essential that the SFT markets function smoothly during both normal and stressed times. Our report’s findings suggest the need for several policy revisions and that further work needs to be conducted in recalibrating the global prudential standards, without sacrificing safety and soundness, to ensure better functioning of the repo and broader SFT markets for the benefit of the wider global economy.” Godfried De Vidts, Chair of the ICMA European Repo and Collateral Council, said: “It is clear that regulation is a key driver of changes in the way the repo and broader SFT markets operate today and how they will evolve in the near future. While the markets have thus far proved resilient, they are still some way from reaching a new normality, with regional markets at different stages of that evolution reflecting divergent implementation of regulatory reforms on different timelines, and the impact of future regulatory reforms remains a key concern. Hence it is important to conduct review of the coherence and calibration of the post-crisis regulatory framework, particularly pertaining to how it impacts the repo market, and to ensure that any proposed further reforms are subjected to robust impact analysis.” Recommendations: The report makes several recommendations to review the post-crisis regulatory framework, particularly pertaining to how it impacts the repo market, including that: The FSB and Basel Committee on Banking Standards should review the coherence and calibration of the post-crisis regulatory framework, particularly pertaining to how it impacts the repo market. The treatment of repo transactions backed by the highest quality government bonds should be reviewed in order to ensure that the private sector market has the capacity to absorb QE unwind and to operate without significant reliance on central banks during normal and stressed market conditions. The minimum SFT haircuts regime should be reviewed in line with policy objectives to address unregulated markets in order to avoid significant disruptions to the repo and securities lending market. – Ends –

AFME welcomes today’s Euro Summit agreement to provide a backstop to the existing Single Resolution FundOliver Moullin, Head of Recovery & Resolution, said: “Today’s agreement to provide a backstop to the SRF by 2024 at the latest is a further step to reinforce thecredibility of the Single Resolution Mechanism. Nevertheless, the governance arrangements need to be clear,effective and efficient enough to ensure the backstop can be reliably operationalised if needed. Alongside theSRF, it is important to make progress on the provision of liquidity in resolution and reducing fragmentationwithin the Banking Union.”

Simon Lewis, Chief Executive of AFME, said: “Deep and integrated European markets that allow cross-border trading to take place between the EU and third countries are of vital importance for a healthy European economy that promotes economic growth. Therefore, any fragmentation of Europe’s stock market risks negative implications for corporates and investors across the EU. “In this respect, the current uncertainty surrounding the Swiss equivalence determination is a regrettable situation for European equities markets and does not benefit market participants, least of all European end-investors. “The optimal resolution would therefore be for both sides to reach an agreement as soon as possible.” - ENDS -

Following the ECOFIN meeting of finance ministers today and the announcement that a political agreement has been reached on the Risk Reduction Measures (RRM) package, Michael Lever, Head of Prudential Regulation, said: On unlocking progress towards a Banking Union: “We welcome today’s political agreement on the package of banking and resolution measures which represent an important further step towards reducing risks in the banking system and avoiding national taxpayer funded bailouts. Together with already significant strengthening of banks’ balance sheets, including substantial reductions in the stocks of non-performing loans, these improvements should enable further progress to be made towards the completion of Banking Union. This should include the establishment of a credible backstop for the Single Resolution Fund, which we encourage EU leaders to support during their next summit, and the delivery in the coming months of a European Deposit Insurance Scheme.” But barriers remain: “Unfortunately, the risk reduction measures have failed to remove barriers to the free-flow of capital and liquidity across the EU, or even within the Banking Union. And in some areas, such as requirements for fully propositioned internal MREL, new barriers have been put in place which are not in keeping with the broader objectives of Banking Union. On making Banking Union a reality: “While we appreciate the need to introduce all major elements of the RRM package into the EU framework in a timely manner, it is regrettable that in some areas, barriers to full integration remain and that the agreement does not include commitments to review and remove these regulatory obstacles. We call on Member States to support the next Commission in making Banking Union a reality”. – Ends –

Following the publication of the Commission’s NPLs stocktake today, Michael Lever, Head of Prudential Regulation, at AFME, said: “AFME welcomes the progress that has been made to date on the European Commission’s legislative initiatives on NPLs. Reducing the level of NPLs on European banks’ balance sheets will free up capacity to support customers and economic growth. Such action will also lower overall risk in the banking sector which is a pre-requisite for the much-needed completion of Banking Union. It is therefore very encouraging to see that the level of NPLs has fallen by around a third since 2014 .” “Nevertheless, further work remains to be done. In particular, it is important to ensure that the Commission’s initiatives for reducing the future build-up of NPLs are consistent with and complementary to those made by other regulatory bodies, especially the ECB.” “With regard to provisioning for NPLs in future, AFME welcomes many of the changes made by legislators as an improvement to the Commission proposal. These changes will give more flexibility to how the ‘backstop’ provisions are applied and provide room for supervisors to set stricter provisioning requirements if necessary.” “Similarly, more progress is required on measures intended to further develop the secondary market for NPLs., Lawmakersshould consider the appropriate scope to make sure that the proposed measures both reduce the level of NPLs on European banks balance sheets, and also help to increase the trading market for NPLs in Europe.” – Ends –