As part of their respective responses to the Financial Conduct Authority’s recent consultation on improving transparency for bond and derivatives markets, the Association for Financial Markets in Europe (AFME) and the Investment Association (IA) have reached a significant agreement on a proposal for future UK post-trade transparency model for corporate and sovereign bonds. AFME and IA members have worked closely together over several months to jointly develop a framework that builds upon current FCA proposals and provides an optimal solution for the structure of the revised post-trade transparency regime in the UK. Each of the two currently proposed FCA models in CP 23/32 have their strengths but the associations believe that neither represents the optimal structure. The AFME/IA proposed model takes the best elements from each of the FCA models and combines them into a hybrid framework. The associations believe this hybrid approach is better suited to the twin objectives of optimising 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 trades. The associations’ joint belief is that this hybrid model does not represent a radical departure from the FCA’s options, but will lead to an overall better outcome than either of the FCA models individually. The joint proposal was informed and supported by extensive analysis of existing post-trade data, provided by FINBOURNE Technology, which was instrumental in the process of establishing the proposal. Victoria Webster, Managing Director of Fixed Income at AFME, said: “Establishing the correct balance on a revised framework for the bond transparency regime is a difficult task, particularly given the often opposing views from different parts of the industry. Therefore, achieving alignment between our associations is a significant, and somewhat unique achievement, since it represents a coming together of the buy and sell side and, as such, we hope it will provide valuable input to the FCA’s decision making on the future UK post-trade transparency framework.” Galina Dimitrova, Director for Investment and Capital Markets at the IA, said: "Having worked together with AFME, we're pleased to put forward this joint proposal on a framework for bond post-trade transparency, which balances the needs of the buy and sell side. This hybrid approach will offer timely transparency, while protecting investors and liquidity providers when executing very large trades." AFME and the IA’s proposals on post-trade deferrals in respect of bonds and instrument scoping are fully endorsed by UK Finance members. The hybrid model includes two large in scale (LIS) thresholds and specific caps on the transaction volume that is published after a 4 week deferral (i.e. a mix between the two FCA models), and also replaces FCA Model 1’s middle tier of deferrals (price reported at 15 minutes and volume reported on T+3), with the reporting of price and volume at T+2. AFME and the IA look forward to engaging with the FCA on this important development in the coming weeks. – Ends –

The Association for Financial Markets in Europe (AFME) has today welcomed the publication of the final report on the FCA’s Wholesale Data Market Study. This study is a crucial part of the wholesale market data investigation into competition in three key markets: provision of benchmarks, credit ratings data, and market data vendor (MDV) services. The FCA final report is a key piece of analysis which assesses persistent user concerns about how wholesale data markets are working through six lenses: barriers to entry and expansion, network effects, vertical integration, suppliers’ commercial practices, data users’ behaviour and incentives for innovation. Notably, the FCA has found evidence and drivers of market power in all three key markets in the form of market concentration and highly profitable margins, among others. AFME believes it is essential to ensure a competitive, efficient market for wholesale market data which does not result in excessive costs for users. April Day, Managing Director of Equities and Victoria Webster, Managing Director of Fixed Income at AFME, commented:“Our members actively use market data for a wide variety of primary and secondary markets purposes. Many of the FCA’s findings that certain features in the three markets may prevent, restrict or distort competition are consistent with AFME’s concerns, as expressed in our previous analyses. “We note that the FCA has recognised shortcomings in the three markets but has ultimately decided not to make a market investigation reference to the Competition and Markets Authority. We also note that this decision is based on the FCA’s assessment that, as a sector regulator, it is in a strong position to shape remedies and supervise their implementation. “As the FCA continues to develop its framework for the UK consolidated tapes for bonds and equities, we encourage policymakers to ensure holistic market regulation of wholesale market data.” AFME’s concerns surrounding market data include: High market concentration: competition is required to ensure data is priced fairly and efficiently. We note the FCA’s finding in their previous analyses that, while high start-up costs are not insurmountable to overcome, recent entrants have not been able to achieve the growth necessary to acquire significant market share. Certain data providers are extremely embedded in the UK and global financial ecosystem, and further concentration from mergers and consolidations have exacerbated their market power. We also note the previous findings from the FCA study on Trade Data which reflects our concerns regarding the significant market share exchanges hold as data providers, particularly as most users are forced to buy trading data to satisfy their investor protection obligations (best execution), while others need to obtain ‘must have’ data from exchanges to remain competitive themselves. Restrictions around usage rights within license terms: long standing practices within licensing and data-use agreements and non-transparent pricing have contributed to the rising cost of data, which is one of the most significant challenges facing the effective functioning of wholesale markets. Users can often be required to pay multiple times for the same data or pay a rate much higher than previously for the same data with no improvement to quality or access. Increased costs eventually have a detrimental impact on end investors. AFME supports the development of a well-constructed consolidated tape as this will contribute to improving the quality of market data, reducing its costs, and decreasing the complexity relating to market data licenses. AFME has provided a detailed response to both FCA CP 23/15 and response to FCA CP 23/33 on this topic. AFME continues to support the FCA’s extensive work evaluating how data and advanced analytics are being accessed and used, as well as their value to market participants, particularly regarding how competitively data within the three markets is sold and priced. We look forward to assessing the FCA’s remedies to address the identified shortcomings and to continuing our engagement with the FCA on this topic going forward. – Ends –

Commenting on the finalisation of the Anti-Money Laundering (AML) package and the announcement today of where the new EU Anti Money Laundering Authority (AMLA) will be based,James Kemp, Managing Director at the Association for Financial Markets in Europe (AFME), said:  “With the host city of Frankfurt now selected, we look forward to the AMLA’s operationalisation. The new authority is a welcome addition to the European system of financial supervision and will strengthen the efforts of national authorities in countering financial crime. “Financial crime is constantly evolving and criminals continually seek new ways to exploit vulnerabilities in the financial system. AFME members stand ready to support AMLA and supervisory authorities across the EU in this move to a strengthened system to counter money laundering and terrorist financing threats. “The adoption of the wider EU AML package is a landmark achievement. AFME is supportive of this final agreement and of building a strong foundation for firms to implement a consistent pan-European framework of effective and proportionate risk-mitigation. “AFME suggests that AMLA promotes a proportionate risk-based approach to combatting money laundering and terrorist financing as adopted in the Regulation and Directive. This should drive a primary focus on regime effectiveness through continual assessment of the efficacy of countermeasures and measuring results in terms of illicit asset recovery and disrupting organised crime. “Firms must be able to focus effort and resources on the sources of greatest risk of harm. By granting firms flexibility to concentrate on the territories, sectors and customers which pose the most significant risk of money laundering and terrorist financing, EU lawmakers can demonstrate joint recognition of the scale and nature of the threat faced and this will permit the industry to offer the greatest protections possible”. - ENDS - Notes to Editors: The European Parliament and Council reached final agreement on the texts of a new EU Anti-Money Laundering Regulation and an updated Anti-Money Laundering Directive on 14 February 2024. As part of a broader legislative package, the Parliament and Council also agreed to establish a new authority for countering money laundering and financing of terrorism – the EU Anti-Money laundering Authority (‘AMLA’). AMLA is expected to be operational by the end of 2024.

Commenting on the UK FCA and Bank of England consultations on the regulatory approach to stablecoins, which close today, James Kemp, Managing Director of Technology and Operations at the Association for Financial Markets in Europe (AFME), said: “The UK’s plan to bring stablecoins into the regulatory perimeter is a positive step towards creating a safe and sound system for cryptoassets, and towards promoting confidence in DLT-based capital markets. However, AFME has concerns around the proposed design of a number of the rules, which in their current form will have negative consequences for wholesale markets and participants. “The FCA discussion paper goes beyond just regulating stablecoins, as it proposes enhanced rules in the custody of other types of cryptoassets, including those that currently meet the definition of specified investments. These instruments, which include security tokens, are inherently securities and should be treated as such throughout their lifecycle. To preserve market functioning, it is important that they are not subject to the separate regulatory treatment and territorial scope for custody proposed by the FCA. “AFME is greatly concerned that the proposed custody rules would undermine the status quo for the provision of custody services, especially in wholesale markets. We therefore urge the UK Treasury and FCA to reconsider their proposals: changes are needed to enable UK wholesale institutions to optimally access and provide custody services in the growing markets of security tokens. Without such changes, the proposals would negatively impact UK investors’ market access, hamper the UK’s role as a fintech hub and challenge the growth of DLT-based capital markets in the UK.” Specifically, AFME suggests: The territorial scope of regulated custody activities should not deviate from current market practice. We disagree with the proposed expanded territorial scope to capture relevant cryptoasset activities undertaken from outside of the UK. This proposed treatment would represent a significant departure from the way the territorial scope for regulated financial services activities (including the custody of security tokens) is currently determined under the UK framework. Cryptoassets qualifying as specified investments (including security tokens) should be treated as such throughout the regulatory framework and not be subject to a proposed separate regime for custody. The FCA’s approach to regulating the custody of cryptoassets should distinguish between the custody of cryptoassets qualifying as specified investments (including security tokens) and the custody of other cryptoassets (including stablecoins). Existing FCA rules should be maintained for the custody of cryptoassets that meet the definition of specified investments (including security tokens) and tokenised deposits. To facilitate and incentivise the issuance of regulated stablecoins, the criteria for FCA-regulated and BoE-regulated stablecoins should not be overly restrictive. We view that the criteria for backing assets should be broadened beyond short-term government bonds and cash-deposits for FCA-regulated stablecoins and central bank deposits for BoE-regulated systemic stablecoins and should at a at a minimum include high-quality liquid assets. It is imperative that wholesale financial institutions should be able to easily access and use overseas issued stablecoins (e.g. USDC). We believe that the FCA should reconsider the proposed requirement for a UK payment arranger in relation to wholesale payment chains or at a minimum delay its implementation until international frameworks and markets mature. - ENDS - Notes to Editors: Background: As part of the future financial services regulatory regime for cryptoassets, the UK Government has announced a phased regulatory approach to regulating the new asset classes, with: Phase 1 focused on fiat-backed stablecoins issuance and custody, followed by Phase 2 on the regulation of broader cryptoasset regime. HM Treasury will lay down secondary legislation to implement the framework for regulating both categories of assets and delegate rulemaking powers to the regulators (FCA and Bank of England). The discussion papers from the FCA and Bank of England on stablecoins set out the regulators’ initial Phase 1 proposals. Should they decide to proceed with rulemaking, they have committed to consulting on any final rules through a subsequent call for feedback. AFME has been heavily engaged with the UK’s future financial services regulatory regime for cryptoassets. In 2023, AFME responded to the HM Treasury’s consultation on the regime. AFME intends to engage with UK policymakers throughout the design and implementation of the regime. - ENDS -

Following the provisional agreement reached by the European Council and Parliament on the EU Listing Act yesterday, Gary Simmons, Managing Director of Equity Capital Markets at the Association for Financial Markets in Europe (AFME), said: “Yesterday’s political agreement on the EU Listing Act is a promising first step towards increasing Europe’s attractiveness as a desirable location for companies to list. “And while this is a step in the right direction, the proposals are not perfect. AFME has some concerns about certain elements, including prescriptive page limits. Arbitrary page limits on prospectuses and other disclosure documents’ length will not only potentially increase litigation risks for issuers, controlling shareholders, directors and underwriters, but may also result in risk for investors in not being completely sure that they are being given all of the necessary information to make an investment decision. This may encourage listings outside of the EU, where no such disclosure limitations are imposed and where jurisdictions may be seen as more flexible alternatives, especially for more complex transactions. “In light of the dwindling number of EU Initial Public Offerings, the Listing Act alone will not be enough to ensure that the EU is the best place for corporates to go public. In this respect, work is still needed to boost Europe’s equity market liquidity. “To do this, progress on a meaningful consolidated tape is required, which will provide a single window into investment opportunities across Europe for all investors, democratised regardless of their location or sophistication. While the EU has reviewed its jurisdictionally unusual rules of ringfencing EU investors to certain venues and of capping their trading volumes via certain trading mechanisms, the incoming improvements still leave these rules out of sync with the regulatory frameworks of competing regions. “Europe is at an important juncture to establish itself as a leading equity market. The opportunity to address some structural issues and revise key capital-market regulations, which govern how markets function in the EU, rests with policymakers. “We look forward to continuing discussions and engagements with policymakers as these proposals are implemented in the market.” - ENDS -

Commenting on the latest set of Digital Operational Resilience Act (DORA) publications, published today by the European Supervisory Authorities and outlining the ambitious timeframe for implementation, James Kemp, Managing Director at the Association for Financial Markets in Europe (AFME), said: “There is now only a year until the application of DORA – the EU’s milestone Digital Operational Resilience Act, which has unprecedented and far-reaching requirements. DORA is intended to harmonise risk management frameworks for ICT services and banks have until January next year to ensure they and their suppliers are compliant. “This ambitious 12-month window until implementation is a particular concern because many of the incoming risk management practices are having to be set up manually from scratch, due to authorities’ failure to leverage existing policies and frameworks (for example the ICT Risk Management Guidelines and EBA Outsourcing Guidelines). The pace and scale of the challenge associated with implementation should not be underestimated. This latest set of technical standards will regretfully exacerbate the challenge facing banks and financial entities in taking forward those preparations. “In particular, AFME is concerned that without a proportionate and phased approach to enforcement, the obligations on supplier contracts will cause major disruption. The idea that banks can renegotiate all their third-party contracts within 12 months is unrealistic, especially when many of these contracts are group-wide global arrangements with providers who are themselves not based within the EU. Between now and January 2025, AFME strongly encourages the EU authorities to engage with industry on how firms should be rationalising these requirements. We recommend this be done on a forward-looking basis upon contract renewal. “Proportionality is similarly required on the establishment of the incoming Registers of Information. It is positive that the ESAs have made changes in their final advice to certain problematic earlier proposals, for example dropping the requirement that firms update registers on an ongoing basis and limiting certain reporting requirements to critical or important functions only. Nevertheless, the use of new data fields and formats will impede firms in efficiently pulling data from those registers already in existence. “Ultimately, the Digital Operational Resilience Act was designed to bolster the resilience of the financial system with a special focus on the growing importance of third-party providers in the digital age. It would be self-defeating if the implementation of this milestone regulation, which has the support of industry in principle, caused disruption.” Specifically AFME suggests: Applying the policy for ICT Suppliers on a forward-looking basis: the incoming policy, and related contractual requirements, should be applied only on a forward-looking basis with financial entities permitted to implement the new requirements upon contract renewal, rather than necessitating off-cycle remediation. At the very least, banks should be permitted to prioritise their material contractors, rather than seeking to capture the whole supply chain in a single year. Removing the overlap with existing EBA Outsourcing Guidelines: AFME calls on the ESA’s to address the overlap between the two sets of guidelines as a priority and to allow firms to demonstrate their DORA compliance through the existing practices and structures where possible. Embedding the proportionate approach to the Register of Information: AFME urges the supervisors to build on the amendments within the final report, by focusing their information requests on material outsourcing arrangements, at least in the first year of the Register. We also welcome the decision to remove certain new concepts such as an ICT service identifier. Safeguarding the harmonised Incident Reporting framework: AFME flags the harmonisation objectives of DORA are being fragmented before they even come into practice, thanks to the plethora of horizontal regulatory proposals being taken forward by other parts of the Commission. DG-FISMA must take a more proactive stance in safeguarding the DORA framework from overlapping and inconsistent proposals, particularly the incoming Cyber Resilience Act, which is causing growing alarm amongst industry through its duplicative approach. - ENDS -

Following the conclusion of trilogues on 29 June 2023, and confirmation of final compromise texts by the EU Council on 18 October 2023, the European Parliament has today voted on the latest amendments to the Markets in Financial Instruments Directive/Regulation (MiFID/MiFIR) in its plenary session. Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME), issued the following comment in response: “As the 2019-2024 EU legislative cycle concludes, new and pressing challenges have emerged including strained public finances, demographic shifts and an estimated annual transition investment of EUR 700 billion. This context underscores the importance of developing open, deep, and integrated capital markets to support EU corporates and citizens. “Despite efforts under the EU’s Capital Markets Union (CMU) Action Plans, EU capital markets remain underdeveloped in comparison to the size of the EU economy and the EU’s global counterparts. Financial integration is lower than before the financial crisis, EU bond and securitisation markets are three times smaller than in the US, EU equity issuance remains heavily subdued, and the overall availability of risk capital is around 10 times lower than in the US. “Looking ahead, EU institutions and Member States must come up with transformative actions to attract more investors, increase liquidity, improve the functioning of secondary markets, ensuring the seamless and integrated functioning of a single European capital market. Dynamic, deep and liquid, capital markets are instrumental in achieving Europe’s ambitions in delivering green and digital transitions.” In particular, AFME considers implementing the agreed equities and fixed income consolidated tapes, - which form part of the newly amended MiFIR - should be a priority going forward. A key element in this respect would be to enhance the equity tape with additional levels of order book depth. In more detail: The consolidated tapes will facilitate investors’ access to EU markets with a comprehensive and standardised view of equity and fixed income trading environments. The clearer picture provided by these consolidated tapes will contribute to making EU markets more competitive and attractive to all investors (including retail investors) regardless of their resources, sophistication or location. With the EU’s upcoming needs for private capital sources, this is a critical objective. These tapes are an initial step in making EU cross-border investments easier through the creation of a truly integrated pan-European market, which will ultimately benefit corporates when raising capital and investors when allocating their savings. This will contribute to the ultimate goal of increasing capital flows within the EU and defeating retail investors’ existing home bias (i.e. their tendency to hold a significant share of domestic assets in their portfolios). We also welcome the requirement for ESMA to assess the effectiveness of the consolidated tape for shares by no later than 30 June 2026, including the appropriateness of adding additional features to the equity pre-trade tape, which we would strongly support. We specifically recommend that at an appropriate time the equity pre-trade tape is expanded to include five levels of depth of the order book. This is technically possible and would be the most valuable option for the future subscribers to the tape, providing them with a wide range of non-latency sensitive use cases. Importantly, this would also ensure the commercial viability of the consolidated tape provider. AFME has continued to be a committed supporter of the CMU project and will continue supporting initiatives moving the project forward. AFME recently published its full recommendations for the next EU legislative cycle – available here. - ENDS -

The Association for Financial Markets in Europe (AFME) has today responded to ESMA’s call for evidence on shortening the settlement cycle in the European Union. Pete Tomlinson, Director of Post Trade at the Association for Financial Markets in Europe (AFME), said: “AFME welcomes the opportunity to respond to this important consultation. Moving to a T+1 settlement cycle will be a complex and demanding undertaking for the entire industry, so it is important that feedback is carefully considered before next steps are decided. Any move to a T+1 settlement cycle must be effected in a way that does not introduce new risks, damage the existing efficiency, liquidity and functioning of EU capital markets, create barriers to investing in the region’s securities markets, or diminish access to capital markets for issuers. “If a decision to move to T+1 is made, it will be necessary to define an appropriate timetable that generates industry momentum and provides clarity to market participants.” Among AFME’s key points are: AFME fully supports ESMA’s conclusion that any decision to shorten the settlement cycle in the EU should be based on a proper cost-benefit analysis. It is critical that this considers not only the impact on post-trade processes, but also potential broader market impacts on trading and liquidity and the competitiveness of EU markets. Any move to a default T+1 settlement cycle must be effected in a way that does not introduce new risks, damage the existing efficiency and functioning of EU capital markets, create barriers to investing in the region’s securities markets, or diminish access to capital markets for issuers, which would be contrary to the CMU objectives. AFME calls for a coordinated approach across Europe, including EEA countries, Switzerland and the UK. The North America migration to T+1 in May 2024 represents an opportunity to incorporate “lessons learned” before making a decision in Europe. However, it is important to remember that the complexity of the European post-trade ecosystem could make T+1 adoption a more challenging project in Europe as compared to other jurisdictions. -ENDS -

In response to today’s publication of key components of the UK implementation of the final Basel 3.1 standards agreed in December 2017, which will enter into force in the UK, in combination with the remaining elements anticipated for publication in the second quarter of 2024, Caroline Liesegang, Head of Prudential Regulation at the Association for Financial Markets in Europe (AFME), said:  “Implementing internationally agreed post-financial crisis reforms is an important step in maintaining the role of the UK as a leading international financial centre. Today’s publication of near-final policies on key elements of the Basel 3.1 package is a milestone in this regard, particularly for banks that play an important role in financing the real economy. The policies are closely aligned with international standards with some adjustments to improve risk measurement. “The adjustments include the recalibration of the alpha factor within the standardised approach for counterparty credit risk (SA-CCR). This limits any disproportionate increase in capital requirements for banks and the related impact on end-users' ability to access hedging products to mitigate their risks. “The PRA has also helpfully adjusted its approach in relation to the default risk of sovereign bonds by removing the inconsistency between the standardised approach and internal models. Under the PRA rules, banks are required to use the standardised approach for central government and central bank exposures. This approach should help in facilitating banks’ continued market making in UK government bond markets in support of the economy.  “However, there was scope for further improvements, for instance, through introducing greater differentiation in the treatment of regulated versus unregulated financial sector entities within the credit valuation adjustment framework. This would have recognised the lower risk of counterparties, such as insurance providers, that play a pivotal role in the real economy. Another example is the lack of recognition of insurance as a risk mitigant in the business indicator calculation in the operational risk framework - an approach that is inconsistent with other areas of the prudential framework and results in an overstatement of risk and disproportionate capital requirements.    “Nevertheless, we welcome the clarity brought through the publication of near final policies in these key policy areas and await the remaining elements: credit risk, the output floor, and reporting and disclosure requirements which will allow for the impact of the Basel 3.1 package to be assessed in its entirety.  “Additionally, we await the PRA’s planned review of the Pillar 2 framework to ensure there is no overlap with risks newly captured within the Pillar 1 framework as this will have a critical role in avoiding any undue increases in overall capital requirements.  “In the meantime, it will be important to ensure there is a coordinated timeline for implementing the package internationally, particularly as it relates to market risk standards. Developments in major jurisdictions should also be considered to ensure global consistency and to avoid harming the UK’s competitiveness.”  – Ends –

In response to the agreement reached by the European Parliament and the European Council on the CRR3 and CRD6 proposal, which will implement the final December 2017 Basel III rules in Europe and conclude an era of significant tightening of regulatory standards and constraints for credit institutions, Caroline Liesegang, Head of Prudential Regulation at the Association for Financial Markets in Europe (AFME), welcomed the agreement: “This agreement strengthens banks’ resilience and recognises their role in financing the economy. European banks have raised hundreds of billions in equity capital since the great financial crisis, resulting in record capital levels. This has resulted in greater stability in the financial system, effectively demonstrated earlier this year following some stress events in the banking system. AFME therefore calls on decision makers to resist further increases in capital requirements in the coming years as the banking sector goes through an important implementation phase and will need capacity to finance the real economy during the digital and green transition. “AFME in particular supports the agreement to maintain limited European market specificities while remaining faithful to the Basel principles. Improvements to the treatment of exposures to unrated corporates as the Output Floor is introduced are also welcome and should avoid unnecessarily restricting funding for corporates without ratings, which are key cogs in the EU economy. The recognition of the floor’s impact on securitisation and the introduction of a transitional arrangement to mitigate its impact is a positive development and will hopefully translate into the growth of the EU’s securitisation market. At the same time, a more extensive review of the capital treatment for the securitisation framework is important to ensure this tool can effectively be used by all banks, irrespective of their model approach, to finance the real economy. “Unfortunately, parts of the agreement lead to a suboptimal outcome for the European economy. AFME regrets that the Output Floor will be applied at the solo level of consolidation, despite the fact that it was calibrated by Basel to be applied at the highest level of consolidation. This is not in the interests of the competitiveness of the European banking market as it adds further market fragmentation. It is disappointing to see the lack of progress on market access which will inevitably have an adverse impact on the ability of EU financial institutions, corporates, governmental entities and individuals to access international markets and cross-border services. As further integration of the EU’s banking and capital market progresses, AFME hopes the EU will focus on addressing these obstacles to the free flow of capital and liquidity to allow for more efficient capital allocation in the EU. This will in turn benefit individuals, companies of all sizes and green/innovative projects. “As we look ahead at a long and complex implementation phase, it is important that the EU is flexible with regards to the implementation date, particularly with respect to market risk standards, to ensure global consistency and avoid harming its capital market competitiveness.” - ENDS -