The Association for Financial Markets in Europe (AFME) is setting out its initial reflections and recommendations for banking and capital markets policy ahead of the next EU legislative cycle. As the 2019-2024 EU legislative cycle concludes, new and pressing challenges have emerged: strained public finances, demographic shifts and annual investment transition needs of EUR 700 billion. This context underscores the importance of developing open, deep, and integrated capital markets to support EU corporates and citizens. Benefits of Integrated Markets: For corporates ◾ Allocation of capital to finance innovation & transformation ◾ Access to larger pools of capital & increased liquidity ◾ Cheaper financing as a result ◾ Greater visibility for smaller, high-growth firms For investors ◾ Diversification through broader range of investment options ◾ Increased liquidity contributes to lower costs and higher returns

The Association for Financial Markets in Europe (AFME) has today published a new report 'Sustainable Finance in the EU: Priorities to unlock financing and investment'. The paper outlines AFME members’ views and recommendations on the functioning of the current EU sustainable finance framework and the implementation challenges that banks face in applying it to financing companies. The paper then highlights AFME’s constructive recommendations for policymakers, including how policymakers and regulators can further enable financial institutions in providing financing in support of climate, environmental and social goals. The report sets out five priority recommendations to address identified challenges: Maintain focus on establishing roadmaps, reducing regulatory barriers for the deployment of sustainable investment projects and providing incentives for the real economy transition; Ensure that the regulatory framework is achieving its goals, is coherent and usable in practice to promote and support sustainable finance (including transition finance); Provide a stable regulatory framework with time for implementation and review how it is working in practice, with targeted guidance/changes introduced where needed in consultation with market participants; Ensure that regulation is promoting investment and does not adversely impact the competitiveness of financial institutions or companies operating in the EU and internationally; and Enhance international coordination and improve international interoperability with other key jurisdictions. Alongside recommendations on improving the functioning of the EU regulatory framework, the report also sets out AFME’s recommendations in three further important areas which we see as priorities for EU policymakers: Facilitating transition finance; Developing carbon markets; and Scaling finance for nature.

Press releaseavailable inEnglish, French, German, Italian, Spanish Individual country analysis available for France, Germany, Italy, Spain The Association for Financial Markets in Europe (AFME), in collaboration with eleven other European and international organisations, has today published the sixth edition of the'Capital Markets Union – Key Performance Indicators'report, tracking the progress of Europe’s capital markets against nine key performance indicators. This year’s report shows a mixed picture, revealing no discernible medium-term advancement on the CMU key performance indicators. This edition also coincides with the 30th anniversary of the Single Market. Here too, the data points show minimal change in the development of the EU's capital markets on a global scale. Adam Farkas, Chief Executive of AFME, said:“All the planned measures from the CMU Action Plan of 2020 have now been delivered by the Commission and EU leaders earlier this year committed to finalising negotiations on any open CMU issues before the next EU elections. However, certain goals, such as rebalancing the EU's funding sources toward more market-based financing, channelling individual savings into productive investments, and integrating national capital markets to create a unified EU market have not yet materialised to any meaningful degree. “It is clear that the financing structure of the EU economy will need to adapt, and at pace, if it is to support the EU’s significant and transformative investment needs, including the fast-approaching climate goals of 2030, as well as its demographic and competitiveness challenges. “Ahead of the next legislative cycle commencing, a strategic discussion on the best way forward will take place within the Eurogroup to set out recommendations for the next Commission. These recommendations are highly anticipated by the capital markets industry. The growth of an integrated capital market for Europe must continue to be a key priority if the European Union is to achieve its dual goals of sustainable and digital economic transformation.”

The Association for Financial Markets in Europe (AFME) and Deloitte have today published a new report entitled: ‘Improving the Settlement EfficiencyLandscape in Europe’. The report analyses the causes of settlement fails in the EU securities market and gives recommendations to improve the efficiency of post trade processes. In Europe there is a clear lack of high-quality, granular, public data on settlement fail rates and reasons, which has proved a barrier to assessing the current environment. This report therefore uses different data sources to track inefficiencies across the post-trade lifecycle. AFME has developed a set of recommendations to enable and promote increased settlement efficiency, to improve the current operating environment and help prepare the ground for any potential future transition to a shorter T+1 settlement cycle. AFME recommendations: Reduce exceptions Expedite exception resolution Optimise settlement of available inventory

This report is part of the European Benchmarking Exercise, a market-led initiative organised by AFME, EDW and TSI, and contains results from H2–2022. Its purpose is to further enhance the quality and usefulness of disclosure in the private cash securitisation market, both ABCP and non-ABCP, in the EU and the UK, in order to assist market participants and reassure supervisors. Synthetic securitisations and public ABS bonds are not in scope. It provides aggregated transaction-level data gathered from 12 banks (BayernLB, BNP Paribas, Commerzbank, Credit Agricole, DZ Bank, Helaba, HSBC, ING, LBBW, Natixis, RBI and UniCredit) across 6 countries (Austria, France, Germany, Italy, Netherlands, and the UK) on a voluntary basis. The report shows that non-public securitisation markets are an important source of financing for the real economy. The overall private securitisation market is estimated at least €196bn of total commitments, with the exercise-related dataset covering €73bn of those commitments. Private securitisations backed by trade receivables and auto loans or leasing make up around 73% of the market, of which 36% and 91% respectively are funded through syndicated transactions. This report is the fourth in a series of such reports to be published regularly over time.

AFME & Protiviti have today published a new report entitled:"ESG Data for Financial Services in an Operational Environment."The report looks at the operational consequences from ESG regulatory reporting requirements. It sets out: how financial institutions should manage ESG data across the data lifecycle; the challenges operationally in satisfying the evolving nature of ESG regulations; and where there are opportunities for new technology to exist within this exchange despite the challenges.

The Association for Financial Markets in Europe (AFME) and PricewaterhouseCoopers International Limited (PwC) have today published a new report entitled “Artificial Intelligence: Challenges and Opportunities for Compliance”. For financial markets, AI offers opportunities in multiple areas from Front to Back Office. The adoption of AI, however, presents compliance officers with two main challenges. Firstly, they must understand how AI is being used – particularly in the Front Office - to provide effective advice and challenge to the business on implementation. Secondly, they need to explore how AI can be utilised within the Compliance function to improve efficiency. To address these challenges, this paper sets out how firms’ adoption of AI, within both the first and second lines, is impacting the Compliance function and how Compliance itself can adopt AI. It examines the benefits, risks, and regulatory issues associated with AI in compliance, and offers recommendations for Compliance teams to consider as they incorporate AI into their operations.

The 2023 Annual Review, "Remaining resilient in turbulent times – steps taken towards competitive capital markets", summarises AFME's work over the past year. Capital markets have continued to evolve in a turbulenteconomic and geopolitical environment this past year. Rapid reversals of conditions manifested in some stress events in the banking system. Nevertheless, capital markets have demonstrated resilience. AFME's efforts have been dedicatedto reinforcing capital markets, ensuring their ability to bolster the real economy and serve the diverse needs of stakeholders, including investors and savers.

AFME is supportive of the development of a thriving digital economy within a clear legal and regulatory framework. As these frameworks continue to emerge around the globe, we believe that this is a crucial moment for the financial services industry and regulators to mitigate risks and prevent any unintended gaps in regulator perimeters. In particular, we believe it is crucial to avoid the potential exclusion of so-called “decentralised activities” as this could open opportunities for regulatory arbitrage and weaken the application of emerging frameworks. This exclusion could create unintended risks to financial stability and potential knock-on impacts. While as noted by the Financial Stability Board (FSB) the current overlap of DeFi and Traditional Finance (TradFi) is not yet significant, this should be actively monitored and managed. Our white paper discusses the following principes: The importance of developing a foundational taxonomy classification mechanism for DeFi (and DeFi activities) as well as digital assets. Further research and global cooperation should be encouraged to determine the appropriate, proportionate, and comprehensive regulatory solutions for the unique challenges posed by DeFi. It is crucial to leverage existing processes and frameworks to create a holistic regulatory perimeter. Our paper includes recommendations for: Requiring authorisation prior to conducting regulated financial activities; The importance of choosing an appropriate accountability structure; An initial industry view on establishing a risk-based approach to DeFi; and Support for a ‘Level Playing Field’ and working towards consistent regulation despite varying levels of centralisation. However, in discussing these principles it is important to note that this area of the market is still rapidly evolving and changing. This paper is not intended to be a definitive solution to the challenges posted by DeFi. It is instead a foundational piece of work to further explore some of the technical issues posed by this new area of digital finance, as well as raise some initial proposals on how DeFi could be addressed from a regulatory standpoint. We aim to open an initial discussion across industry on this topic, and look forward to continuing to work on innovative policy solutions for DeFi with both the public and private sector, especially as we look ahead to the Regulatory Technical Standards (RTS) for the Markets in Crypto Assets (MiCA) Regulation, and eventually MiCA 2.

The Association for Financial Markets in Europe (AFME) and Oliver Wyman have today published a new report entitled “A Common Path to improve European Climate Risk Stress Testing and Scenarios Analysis”. The report outlines the key challenges EU banks are experiencing surrounding climate risk stress testing and provides recommendations to improve future stress tests. The report finds that, since the last ECB climate risk stress testing exercises, banks have developed sophisticated approaches to improve their understanding and analysis of climate risks internally, taking inspiration from lessons learned and supervisory guidance in place. The report discusses key highlights from banks’ experience and understanding so far, while outlining areas of focus to improve future climate stress tests and scenarios analysis. Following a survey of 15 of AFME’s member banks and engagement with relevant regulatory and supervisory authorities, such as the ECB, EBA and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), the report highlights key challenges that EU banks are currently experiencing in terms of: scope, data, time horizons, scenarios and different risk types. The report also provides several recommendations for policymakers in order to improve future climate risk stress tests and scenarios analysis. In this respect, AFME’s member banks suggest further supervisory provisions, including: materiality thresholds, consistent data governance framework and collection guidance, meaningful and quantifiable scenario analysis (not solely limited to credit risk) with shorter time horizons, and a framework for nature-related risk considerations in line with the work of the TNFD and NGFS. The paper follows a previous AFME publication on industry learning from the 2022 ECB climate stress testand aims to bridge efforts of banks and policymakers to improve climate risk stress testing methodology and data. AFME urges further collaboration between banks and policymakers to engage on meaningful solutions, in line with the detailed recommendations set out in the report.