January 2010
Financial Services Month in Brussels
Published eleven times in a year
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Graham Bishop’s Personal Overview
prospective Commissioners were grilled on their plans for the next five
years. So ECOFIN will focus on improving the financial sector’s regulation and
supervision as one of the backbones to overcome the crisis. The Spanish Presidency
will work jointly with the European Parliament to put in place, as soon as possible in
the
new
financial
supervisory
arrangements;
negotiate
the
Capital
Requirement Directive and foster agreement within the Council to negotiate the
AIFMD. But the long list of other topics includes crisis management measures in
financial institutions; Deposit Guarantee Funds; reform of the Market Abuse and
Prospectus Directives; improving the investors’ compensation scheme, regulation of
PRIPS (financial products marketed outside the scope of sectoral directives); the
regulation of OCT derivatives markets; revision of the Financial Conglomerates
Directive and progress in the internal market of retail financial services.
Commissioner-designate Barnier underlined that he is committed to the European
project and will defend the European common interest so will not take orders from
Paris or London. But international coordination is a key element in the strategy so
G20 recommendations will be implemented and Europe must be the driving force
alongside the US. On the issue of financial supervision, Mr Barnier encouraged the EP
by saying that it would be good to move back to the original Commission proposal
giving more powers to the ESAs, and there will be a proposal to create a legal
framework for crisis management and resolution. These plans probably portend an
early clash between Parliament/Commission and Council.
He presented a set of legislative proposals that runs to around 27 items for financial
services. These cover CRD4, derivatives (a top priority) and post-trade structures
generally, responsible retail lending, SEPA migration deadlines, consumer financial
education, accounting and auditing standards and many more. All in all, the next five
years will be very busy – right across the financial services spectrum.
ECON Chair Sharon Bowles noted that both Barnier and Almunia signed up to their
‘pledges’ thus “making sure these new Commissioners ... work closely with MEPs
from an early stage” – an interesting form of regulatory capture.
Across the Atlantic, the spirit of G20 co-operation seemed to be rather less
noticeable as President Obama suddenly announced that ‘Banks will no longer be
allowed to own, invest or sponsor hedge funds, private equity funds or proprietary
trading operations for their own profit unrelated to serving their customers..Never
again will the American taxpayer be held hostage by a bank that is too big to fail”.
But this was after he suddenly announced that “We want our money back – and we’ll
get it! ...My commitment is to recover every single dime the American people are
owed." How Europe will respond to these initiatives is not yet clear!
International G20
International: US
International: Japan
International: Other G20
Financial Stability –policy
analysis
The Spanish Presidency set out its stall for the next six months while
2010,
Financial Services Policy:
G20/Financial Stability Board
Non Co-operative Jurisdictions
Consumers/Retail Fin Services
Level 2 & 3 Committees
Edited Minutes/Notes:
ECOFIN/Council Meetings
ECON Meetings
JURI and IMCO Meetings
EP Plenary Meetings
Banking:
Deposit Guarantee Schemes
Capital Requirements
Basel Committee of Banking
Supervisors
Payments
Mortgage Credit
Financial Conglomerates
CEBS
Securities:
OTC Derivates
IOSCO
Short Selling
MiFID
Securities Dealing
Clearing and Settlement
Credit Rating Agencies
Financial Conglomerates
CESR/ESC
Prospectus
Market abuse
Insurance:
Solvency II
Insurance Guarantee Schemes
Insurance Mediation
Insurance Groups
Financial Conglomerates
CEIOPS/EIOPS
Asset Management:
AIFM Directive
UCITS
Hedge Funds
Private Equity
Supplementary Pension
Pension Funds
CESR/CEIOPS
Corporate Governance:
International Accounting
Standards
Auditing
Reporting
Competition:
Banking
Insurance
Securities
However the G20 process is still casting a long shadow at the technical level as the
Central Bank Governors and Heads of Supervision reinforced the Basel
Committee reform package for strengthening the resilience of the banking sector
and the international framework for liquidity risk measurement, standards and
monitoring. The BCBS should deliver a fully calibrated and finalized package of
reforms by end-2010. The FSB said it is essential to raise the quality and level
of capital in the banking system. After the confusion about remuneration policies
in different states, the FSB distributed a template to collect information from national
authorities December 2009 with an initial review to be completed by March.
European banks particularly welcome the fact that their recurrent call for a
comprehensive assessment has been taken into consideration – not only of all the
measures in accumulation, but also of their calibration and interdependencies. The
EBF supports the need for international harmonisation of prudential and accounting
standards, thus ensuring a level playing field between banks. It stresses that
otherwise, the variations in national definitions of capital, leverage ratios, and the
provisioning systems and countercyclical buffers will create an unlevel playing field,
with potential risks to systemic stability as a result.
In the background, the problems of the Greek government deficit are looming as
ECOFIN welcomed the Commission's examination of the statistical issues. But there
could be a regulatory issue: This author has argued for the past two decades that
the credit quality of government debt is intrinsically altered by participation in a
monetary union. The time may come when it is no longer tenable for regulators to
argue that government debt should be zero risk-weighted for banks when ECOFIN is
demanding urgent action, and both market and ratings are priced for significant
default risk. Such recognition would strike at the heart of the analytical
framework underpinning Basel/CRD.
The users of OTC derivatives made their voice heard forcefully. More than 160
non-financial companies based in Europe have signed a letter prepared by the
European Association of Corporate Treasurers to the Commissioner to urge
reconsideration of the proposals being drafted to regulate the derivatives market.
Also, the UK authorities have objected to forcing standardised OTC contracts onto
organised trading platforms. In other parts of the infrastructure, the ECB consulted
on the provision of a data-handling infrastructure for ABS loan-by-loan
information so that disclosure standards are increased.
The Spanish Presidency published some notes on the AIFMD to analyze the
regulatory models embedded in both the Council’s and the Parliament’s drafts. The
document should contribute by describing and comparing the options and solutions
put forward by both institutions for the usual seven issues. This process really shows
that “co-legislation” is quickly becoming embedded in the system.
The debate about the role of institutional investors in exercising their rights
seems to be developing as the UK’s Financial Reporting Council consulted on its
stewardship code for UK listed companies. But the effectiveness of this approach
depends on sufficient investors being willing, directly or indirectly, to put resources
into engaging actively with the companies in which they invest. The FSA’s Lord
Turner called for close engagement between accounting standard-setters and
prudential regulators of banks as the issues about the exact definition of capital
become ever more intense.
Graham Bishop
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About GrahamBishop.com
Graham Bishop has spent over
30 years working in the City of
London as an economist and
investment manager. For the
last 15 years, he has focussed
on the deregulation of Europe’s
financial markets due to the
Single Market programme and
EMU.
These create business
and investment opportunities,
so our consultancy provides an
informed analysis from the
practical
perspective
of
a
market participant.
Administration
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Financial Services Policy
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Eurofinas believes the proposed Consumer Rights Directive is an ill-suited framework for the lending market
Spanish Prime Minister presents the EU presidency work programme - special focus on the reform of the European
financial market
ECOFIN Council conclusions on strengthened mutual assistance for the recovery of taxes
ECOFIN Council conclusions on Commission report on Greek government deficit and debt statistics
Greek Stability and Growth Programme update presented to EU Council
Head of IMF warns of threats to recovery; stimulus is still required
ECB and Commission launch assistance programme for supervision of EU candidates
Commission consults on tying and other unfair commercial practices in the retail financial service sector
MARKT Commissioner-designate Barnier will not take orders from Paris or London, but will defend the European
common interest
ICMA's regulatory newsletter pays special attention to the Commission’s proposal on OTC
IMF consults on possible financial sector tax as requested by the G20 last September
Central Bank Governors and Heads of Supervision reinforce Basel Committee reform package
FSB on the financial reform agenda: it is essential to raise the quality and level of capital in the banking system
FSB consults on peer review on compensation practices within large financial institutions
Joint Forum Report: Review of the differentiated nature and scope of financial regulation
FT: Iceland refuses to approve the deal to reimburse Britain and the Netherlands - a referendum may take place
Commission European Financial Integration Report 2009 – great policy achievements on financial supervision
ECB Papademos comments on ECB’s 2009 Financial Stability Report - risks still exist
IFSL reports considerable drop of trade surplus and employment in financial services sector
Commission single market review - derivatives could entail significant risks to financial stability
Commission issues European Financial Integration Report 2009
UK Treasury consults on plans to manage investment bank failures
Will Governments Overreach in their Crisis Interventions?
Spanish Prime Minister presents the EU presidency work programme - special focus on the reform of
the European financial market: The Spanish Prime Minister appeared before the European Parliament today to
present the work programme that will steer the Government's presidency of the EU over the next six months. On
the Presidency's work programme, Mr Zapatero affirmed that its main concern over his six months in office will be
to consolidate the economic recovery and to lay the groundwork for sustainable growth that will enable the creation
of stable jobs in Europe once again.
ECOFIN work programme: In addition to the structural reforms, the improvement of the financial sector’s
regulation and supervision is one of the backbones to overcome the crisis. Special focus will be placed on the
measures aimed at the reform of the European financial market, including the endorsement of the Commission’s
Financial Services priorities during the period of 2010-2015 with a longer term financial markets integration
outlook.
Hence, the Spanish Presidency will work jointly with the European Parliament to put in place, as soon as possible in
2010, the new financial supervisory framework, endorsed by the Council in December 2009. We shall also put our
efforts into negotiating the Capital Requirement Directive and shall foster the agreement within the Council to
negotiate the Alternative Investment Funds Managers Directive. Priority will also be given to the progress made
regarding crisis management measures in financial institutions. Current work related to the Deposits Guarantee
Fund will be particularly addressed.
In financial sphere the Spanish Presidency wishes to foster, inter alia, the following priorities: the reform of the
market abuse directive to improve the relevant information communication scheme, the upgrading of regulations
applicable to prospectus required for public offers and for admission to trading on regulated markets, the
improvement of investors’ compensation scheme, the regulation of the so-called pre-packaged investment products
(financial products marketed outside the scope of sectoral directives), and the regulation of OCT derivatives
markets. A revision of the Financial Conglomerates Directive is also foreseen as well as progress in the internal
market of retail financial services.
MARKT Commissioner-designate Barnier will not take orders from Paris or London, but will defend the
European common interest: See Full report
He is committed to the European project and he will defend the European common interest so he will not take
orders from Paris or London. But international coordination is a key element in the strategy so G20
recommendations will be implemented and Europe must be the driving force alongside the US. For example, the
G20 has already provided remuneration guidelines and he believes that it is in the interest of the financial sector to
introduce regulation that brings in ethics and avoids excessive risk taking.
On the issue of financial supervision, Mr Barnier encouraged the EP by saying that it would be good to move back
to the original Commission proposal giving more powers to the ESAs and there will be a proposal to create a legal
framework for crisis management and resolution. [GB’s comment: These plans probably portend an early clash
between Parliament/Commission and Council.]
He presented a set of legislative proposals that runs to around 27 items for financial services. These cover CRD4,
derivatives (a top priority) and post-trade structures generally, responsible retail lending, SEPA migration
deadlines, consumer financial education, accounting and auditing standards and many more. All in all, the next five
years will be very busy – right across the financial services spectrum.
Central Bank Governors and Heads of Supervision reinforce Basel Committee reform package: The
oversight body of the Basel Committee on Banking Supervision welcomed the substantial progress of the Basel
Committee in translating the Group's September 2009 agreements into a concrete package of measures, as
elaborated in the Committee's 17 December 2009 Consultative proposals for strengthening the resilience of the
banking sector and the International framework for liquidity risk measurement, standards and monitoring.
Governors and Heads of Supervision requested the Committee to deliver a fully calibrated and finalized package of
reforms by the end of this year. Central Bank Governors and Heads of Supervision welcomed the Basel
Committee's focus on both micro-prudential reforms to strengthen the level and quality of international capital and
liquidity standards, as well as the introduction of a macro-prudential overlay to address pro-cyclicality and systemic
risk.
FSB on the financial reform agenda: it is essential to raise the quality and level of capital in the banking
system: The Financial Stability Board (FSB) met in Basel on 9 January to take forward the regulatory policy reform
agenda and reaffirm the timelines for policy development and implementation in 2010. The meeting also agreed on
a framework for strengthening adherence to international standards, and reviewed current conditions and
adjustment in the financial system.
The following issues were discussed: Financial conditions; Improving financial regulation; Sound compensation
practices; Bank capital and liquidity; Reducing moral hazard and strengthening capacity for cross-border resolution;
The perimeter and consistency of regulation; Strengthening accounting standards; Framework to strengthen
adherence to international standards.
FSB consults on peer review on compensation practices within large financial institutions: Compensation
practices within large financial institutions are one factor among many that contributed to the financial crisis which
began in 2007. The peer review on compensation will focus on the steps being taken or planned by FSB member
jurisdictions to ensure effective application of the Principles and Standards, as well as progress to date in
implementation by significant financial institutions. A template to collect information from national authorities was
distributed to FSB members in December 2009, and the responses will be analysed and discussed by the FSB. The
initial review is to be completed by March 2010 and the report will be published.
Joint Forum Report: Review of the differentiated nature and scope of financial regulation: This review
was requested by the G20 through the Financial Stability Board. The report analyses key issues arising from the
differentiated nature of financial regulation in the international banking, securities and insurance sectors. It also
addresses gaps arising from the scope of regulation as it relates to different financial activities, with a particular
focus on certain unregulated or lightly regulated entities or activities. The objectives of the review were to identify
potential areas where systemic risks may not be fully captured in the current regulatory framework and to make
recommendations on needed improvements to strengthen regulation of the financial system.
Commission single market review - derivatives could entail significant risks to financial stability: The
Commission has issued its latest edition of Single Market News which features an interview with Charlie McCreevy.
He talks about his impressions of Europe, his achievements as a commissioner and the challenges he believes lie
ahead for Europe’s new leaders. The review also pays special attention to derivatives.
IMF consults on possible financial sector tax as requested by the G20 last September: The International
Monetary Fund is launching a consultative process as it begins to examine policy options for how governments can
recover public money used to support banks and other financial institutions during the economic crisis. Some form
of financial sector tax is one of the options under examination. At their Summit held in September, the Group of
Twenty industrial and emerging market countries (G20) requested that the IMF analyze policy options “for how the
financial sector could make a fair and substantial contribution toward paying for any burdens associated with
government interventions” to repair the system.
Commission consults on tying and other unfair commercial practices in the retail financial service
sector: Building on the work undertaken by the Commission as part of the sector inquiry into retail banking and
the results of the public consultation on the Green Paper on the Retail Financial Services in which tying was
identified by financial services users as a key barrier to the integration of EU retail financial services markets, the
Commission announced its intention to study tying and other potentially unfair practices in the field of retail
financial services to measure their impact and to understand why they are used. Against this background, the
Commission had commissioned an external study on Tying and other potentially unfair commercial practices in the
retail financial services sector.
International G20
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Dec 09
Obama urges banks to limit in size and investment
Paul Goldschmidt: disappointing Congressional hearings on the financial crisis
CFTC consults on regulations regarding retail FOREX transactions
IPE: CFTC proposals will affect few, if any, commodity investors
SEC proposes rule to reduce market access risks
Obama Bank Tax: We want our money back – and we’ll get it!
CFTC Gensler calls for comprehensive reform to the over-the-counter derivatives markets
Bernanke calls for better execution of financial regulation and supervision
FSA Japan issues Blueprint for Financial Services Regulation
Obama urges banks to limit in size and investment:
‘Banks will no longer be allowed to own, invest or
sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving
their customers’, US President Obama said.
The so-called Volcker Rule intends to ‘close loopholes that allowed big financial firms to trade risky financial
products like credit default swaps and other derivatives without oversight ..If financial firms want to trade for
profit, that's something they're free to do ...But these firms should not be allowed to run these hedge funds and
private equities funds while running a bank backed by the American people...The plans should also facilitate to
identify system-wide risks that could cause a meltdown, strengthen capital and liquidity requirements to, and
ensure that the failure of any large firm does not take the entire economy down with it...Never again will the
American taxpayer be held hostage by a bank that is too big to fail”, Obama promised and expects facing strong
opposition to his announced plans. “If these folks want a fight, it's a fight I'm ready to have”, he said.
Obama Bank Tax: We want our money back – and we’ll get it!: US President Barack Obama called on Wall
Street to pay a fee of up to $117 billion to repay taxpayers money for the financial bailout.
"My commitment is to recover every single dime the American people are owed," the US President said and
referred to the “reports of massive profits and obscene bonuses” of those financial companies who received
massive support from the governments TARP program. The so-called "financial crisis responsibility fee," would
apply only to financial companies with assets of more than $50 billion. The plan will include a levy of 0.15 basis
points of covered liabilities per year of these firms, and it is expected that some 60 percent of the revenue would
come from the 10 largest financial companies.
The full details of the fee proposal are expected to be made public in February and will be subject to shaping by
Congress. Although AIG will be subject to the fee, the mortgage lenders Fannie Mae and Freddie Mac as well as US
carmakers will be excluded from these measures.
Bernanke calls for better execution of financial regulation and supervision: The best response to the
housing bubble would have been regulatory, not monetary, Fed chairman Ben Bernanke said in a speech held
before the American Economic Association in Atlanta, underlining that is not that financial regulation and
supervision are ineffective for controlling emerging risks, but that their execution must be better and smarter.
“Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management
would have been a more effective and surgical approach to constraining the housing bubble than a general increase
in interest rates... Regulators, supervisors, and the private sector could have more effectively addressed building
risk concentrations and inadequate risk-management practices without necessarily having had to make a judgment
about the sustainability of house price increases”, he said.
SEC proposes rule to reduce market access risks: The SEC has proposed a new rule that would effectively
prohibit broker-dealers from providing customers with "unfiltered" access to the markets. It also called for
comment on issues relating to high-frequency trading, co-locating trading terminals and dark pool trading as it
seeks to re-write the rule-book for a new era of computer-driven trading. The SEC's proposed rule would require
brokers with market access, including those who sponsor customers' access to an exchange, to put in place risk
management controls and supervisory procedures.
The SEC's proposed rule would require broker-dealers to establish, document and maintain a system of risk
management controls and supervisory procedures reasonably designed to manage the financial, regulatory and
other risks related to its market access, including access on behalf of sponsored customers.
The SEC also approved a new Nasdaq rule that requires broker-dealers offering sponsored access to Nasdaq to
establish certain controls over the financial and regulatory risks of that activity. The Commission’s proposed rule
would extend beyond this new Nasdaq rule in several respects.
FSA Japan issues Blueprint for Financial Services Regulation: The Japanese Financial Services Agency (FSA)
issued the English translation of its “Draft Blueprint for the Development of Institutional Frameworks Pertaining to
Financial and Capital Markets” as issued in September in preparation for the ordinary session of the Diet.
With regard to the stability and transparency of the settlement of OTC derivative transactions, the FSA proposes
that the clearing of OTC derivative transactions of a large trading volume needs to be subject to mandatory CCP
clearing to prevent contagion and reducing settlement risk in Japan’s financial markets. In parallel with the
mandatory CCP clearing, regulations on major shareholders and regulations on capital should be introduced for
domestic CCPs. Furthermore, information on OTC derivative transactions should be submitted to the authority from
trade repositories and from CCPs. Also, the authority also needs to be able to require that financial institutions
submit information directly to it.
For the securities clearing and settlement systems, including for government bond transactions and stock
lending transactions market participants, including the JGBCC should produce and publish a roadmap during the
first half of 2010 outlining the way to strengthen the systems of JGBCC in order to increase the use of its clearing
services, as well as shortening the settlement interval, and establishing and disseminating rules for handling
settlement fails. The FSA will consider the mandatory CCP clearing of JGB transactions as a statutory measure.
The FSA also intends to formalize the consolidated regulation and supervision of securities companies whose
overall risks might be hard to be identified under the current non-consolidated-based regulation and supervision.
Further issues include the regulation on Hedge Funds, where the Japanese
FSA is closely monitoring the
developments in the EU and the US. Also, short selling measures and the regulation of unsolicited offer for overall
derivative transactions are under scrutiny for 2010.
Financial Stability –Policy Analysis
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Twenty leading figures, including Lord Turner, give their views on the future of the UK financial services industry
Ruben Lee: The Governance of Financial Market Infrastructure
Nicolas Véron: the jury is still out on EU's crisis performance
Twenty leading figures, including Lord Turner, give their views on the future of the UK financial services industry
Bruegel report on financial transaction tax to be used by the ECON Committee
ACCA publishes nine principles to achieve financial stability by 2020
Bruegel report on the EU’s role in supporting crisis-hit countries in central and eastern Europe
Centre for European Reform publishes 'How to Restore Financial Stability'
Nicolas Véron: EU has major challenges to confront
CEPS paper on comparing EU and US responses to the financial crisis
ECB report on recent advances in modelling systemic risk using network analysis
Bank of England Financial Stability report 2009 - many banks will need to reduce leverage
ECB financial stability review - banks will need to ensure that they have adequate capital and liquidity buffers
IBM study: The good days for financial markets are over
ECB financial stability review - banks will need to ensure that they have adequate capital and liquidity
buffers: To cushion the risks that lie ahead, banks will need to be especially mindful in ensuring that they have
adequate capital and liquidity buffers in place. If the circumstances require it, some banks may need to raise new
and high-quality capital. In addition, some banks, especially those which have received state support, may need
fundamental restructuring in order to confirm their long-term viability when such support is no longer available.
This could involve the shrinking of balance sheets through the shedding of unviable businesses with a view to
enhancing their profit-generating capacities. At the same time, banks should take full advantage of the recent
recovery in their profitability to strengthen their capital positions, so that the necessary restructuring of businesses
and the enhancement of shock-absorbing capacities do not impinge materially on the provision of credit to the
economy.
Bank of England Financial Stability report 2009 - many banks will need to reduce leverage: In relation to
safeguarding financial stability in the future, the Report says that, in the medium term, the root causes of this and
previous systemic crises must be tackled – excessive risk-taking in the upswing of the credit cycle and insufficient
resilience in the subsequent downturn. An expectation that ‘too important to fail’ firms will receive public
assistance, and that unsecured, unsecured wholesale creditors will not share losses, has exacerbated both the
boom and the bust. That calls for a robust, multi-faceted policy response. Regulatory policies should give greater
emphasis to systemic risks across the cycle and across institutions, as set out in a recent Bank discussion paper
(The role of macro-prudential policy, November 2009). They should be complemented by structural measures to
contain the spread of risk across the system. And because failures of financial institutions cannot and should not be
prevented, the resolution framework will need to be extended to limit the impact on the wider economy.
CEPS paper on comparing EU and US responses to the financial crisis: since 2003, the EU and the US have
conducted a vibrant regulatory dialogue on financial regulation, but domestic priorities seem to have taken
precedence in response to the financial crisis. This ECMI Policy Brief compares the institutional and regulatory
changes occurring on both sides of the Atlantic. On the institutional side, it compares macro- and micro-prudential
reforms. On the regulatory side, it compares four key areas: bank capital requirements, reform of the OTC
derivative markets, and the regulation of credit ratings agencies and hedge funds. It concludes with some
implications for the regulatory dialogue.
On the institutional side, the EU and the US seem to be moving in radically different directions, with (most likely)
reduced powers for the Fed in the US, and more for the ECB in Europe. The US Financial Services Oversight Council
will be chaired by the Secretary of the Treasury, and composed of all regulators, including the Fed. The EU
Systemic Risk Board, on the other hand, will be chaired by a central banker, most likely the ECB President, and
largely composed of central bank representatives, with only one delegate from among the EU’s finance ministers.
On the micro-prudential side, the EU is gradually moving towards a more integrated model of functional
supervision, whereas the US proposals do not seem to go far enough at the present time.
On the regulatory side, where the EU was initially in the lead, both blocs have recently started to converge, with
proposals on credit-rating agencies and hedge funds, largely as a result of initiatives in the US Congress. Hence,
even if institutional responses differ, regulatory responses are more aligned.
Centre for European Reform publishes 'How to Restore Financial Stability': In 2008, the global financial
system came close to collapse. Ever since, policy-makers have been busy overhauling the way it is regulated and
supervised. Will this flurry of activity produce a more stable financial system – and if it does, at what cost? But the
reform agenda suffers from three flaws: side-issues are getting more attention than they deserve; regulation is
doing all the heavy lifting; and not enough attention is being paid to the combined impact of all the changes
underway. The regulatory burden is rising, therefore, but policy may not be taking the optimal path to greater
stability.
One of the conclusions concerns the relation between the state and banks, and says that one of the most urgent
challenges facing policy-makers – vastly more important than, say, clamping down on hedge funds – is to reverse
the long-standing deterioration in ‘terms of trade’ between the state and the financial sector. Over the past two
decades, the risk and leverage of the financial sector has increased, while the state’s safety net has progressively
widened. This is a noxious combination.
The banking sector cannot be allowed to continue living in suspended animation between the market and the state.
No other sector enjoys such an exorbitant privilege. A status which allows banks to privatise rewards and socialise
costs threatens the solvency of states – and will ultimately destroy public support for market capitalism. Banks
must wake up to how important the stakes are.
ACCA publishes nine principles to achieve financial stability by 2020: The financial and regulatory world in
2020 will be much stronger, but only if nine fundamental principles are followed at the start of this new decade. By
2020, nine principles must be the bedrock for a global economy, says ACCA and these include:
1. A separation of retail – or at the very least deposit taking – from investment banking and a return of distressed
banks to the private sector in a profitable way
5. A permanent secretariat for the G20 group of nations
6. A stable, transparent, fair and certain system of taxation
7. The effective adoption of International Financial Reporting Standards
9. Effective corporate governance in the public, private and third sectors.
Nicolas Véron: EU has major challenges to confront: On the face of it, the EU's performance in the crisis has
been mixed. European banks were collectively found carrying much of the US sub-prime housing risk. Supervision
proved inadequate in early cases of bank failures, such as IKB and Sachsen LB in Germany or Northern Rock in
Britain.
The European institutions seemed either absent, as the European Commission failed to take a lead on regulatory
reform, or fixated on sideshows, as with the European Parliament's questionable crusade against private equity and
hedge funds. Conversely, if the noise from the headlines is filtered, a number of striking policy successes emerge.
Europe's policymaking machinery, reasonably equipped to implement long-standing policies, does not perform well
when it comes to inventing new ways to address unprecedented challenges. The gaps in the EU institutions'
democratic accountability make fiscal federalism a non-starter for the foreseeable future, severely restraining the
range of available policy options. Altogether, it is too early to make a definitive assessment of how Europe is
passing the crisis test.
Nicolas Véron: the jury is still out on EU's crisis performance: Few political arrangements have been as
tested by the economic and financial crisis as the European Union. With the implementation of the Larosiere
Report, a blueprint for financial reform published in February 2009, the EU is creating the world’s first supranational
financial authorities, arguably a necessity to sustain cross-border financial integration. And the euro has so far
defied prophecies of its inevitable break-up.
The EU must, by decreasing order of urgency but not of importance, address its lingering banking fragility, steer
Eurozone members towards fiscal repair, adapt its representation in international discussions to become a serious
global player, and make its integrated financial system sustainable through adequate regulatory reform. Each of
these is a monumental task, the completion of which is far from sure.
Ruben Lee: The Governance of Financial Market Infrastructure: Financial markets still matter. Their efficient,
safe and sound operation depends on three key types of infrastructure – exchanges, central counter-parties (CCPs)
and central securities depositories (CSDs). How these institutions are governed critically affects their performance.
Unfortunately, few understand the diversity of how markets are governed across the world, and more importantly,
nobody knows how they should be governed. This report answers the crucial questions: How are markets run? How
should they be run?
Twenty leading figures, including Lord Turner, give their views on the future of the UK financial
services industry: The competitiveness of the UK's financial services sector is more likely to be undermined by
the uncertainty surrounding future regulation of the industry, than by further aftershocks from the recent crisis.
That is the view of leading industry figures featured in The Future of Financial Services, published today to
mark 20 years of the CBI/PwC Financial Services Survey. London’s position as a leading financial services centre
has not been dented by the financial crisis, according to those interviewed for the publication. However, the
economic shift towards the East as well as the risk of unilateral regulatory action taken by UK authorities, pose two
very serious threats.
Edited Minutes
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EP to vote soon on SWIFT agreement on bank data transfer
ECOFIN Council conclusions on Commission report on Greek government deficit and debt statistics
ECON Committee Chair Sharon Bowles comments on Designated Commissioner hearings
Commissioner-designate for Health and Consumer Policy Dalli wants well informed consumers who can take
educated decisions
Commissioner hearings: TAXUD Commissioner Šemeta wants to ensure quality of EU expenditure
MARKT Commissioner-designate Barnier will not take orders from Paris or London, but will defend the European
common interest
Commissioner hearings: COMP Commissioner Almunia wants everyone in the financial sector to respect state aid
rules
Commissioner hearings: ECFIN Commissioner Rehn calls for more economic co-ordination and unified international
representation
Full details of the written answers and MEPs questions at available on the website here.
MARKT Commissioner-designate Barnier will not take orders from Paris or London, but will defend the
European common interest: He is committed to the European project and he will defend the European common
interest so he will not take orders from Paris or London. But international coordination is a key element in the
strategy so G20 recommendations will be implemented and Europe must be the driving force alongside the US. For
example, the G20 has already provided remuneration guidelines and he believes that it is in the interest of the
financial sector to introduce regulation that brings in ethics and avoids excessive risk taking.
On the issue of financial supervision, Mr Barnier encouraged the EP by saying that it would be good to move back
to the original Commission proposal giving more powers to the ESAs and there will be a proposal to create a legal
framework for crisis management and resolution. [GB’s comment: These plans probably portend an early clash
between Parliament/Commission and Council.]
He presented a set of legislative proposals that runs to around 27 items for financial services. These cover CRD4,
derivatives (a top priority) and post-trade structures generally, responsible retail lending, SEPA migration
deadlines, consumer financial education, accounting and auditing standards and many more. All in all, the next five
years will be very busy – right across the financial services spectrum.
Commissioner hearings: COMP Commissioner Almunia wants everyone in the financial sector to respect
state aid rules: First, Almunia made his introductory remarks. He stated for example that competition leads to
lower prices and better quality. In addition, competition policy should be applied rigorously while taking into
account due process. Furthermore, the Commissioner-designate believed that cartels are the worst violation of
competition law. He indicated he will come back to the European Parliament on collective redress and he will
modernise and expedite State aid procedures.
Commissioner hearings: TAXUD Commissioner Šemeta wants to ensure quality of EU expenditure :
Tackling fraud and reducing spending errors, improving the code of conduct for commissioners, harmonising the
corporate tax base and VAT calculation rules, pushing forward "green" taxes and electronic customs - these are
some of the proposals addressed during the hearing of the Lithuanian commissioner-designate Algirdas Šemeta. If
confirmed, his duties will include taxation, customs, audit and combating fraud. ECON members questioned the
Commissioner-designate about the future status of the EU Anti-Fraud Office (OLAF), control of EU spending in
Member States, combating VAT fraud and dealing with tax havens. Mr Šemeta told MEPs that "efforts to tackle
fraud, both in the field of EU expenditure as well as taxes or customs duties, will always be at the centre of my
attention."
Commissioner-designate for Health and Consumer Policy Dalli wants well informed consumers who can
take educated decisions: The Commissioner-designate for Health and Consumer Policy told MEPs during his
hearing that his vision would be that "European Citizens live a longer and healthier life" and that he wanted "wellinformed consumers who can take educated decisions on the goods and services they consume". Furthermore, a
focus on prevention would be necessary to secure sustainability in the health sector. During the discussion MEPs
from the environment, public health and food safety, internal market and consumer protection and agriculture
committees, questioned Mr Dalli on a wider range of non-financial issues.
ECON Committee Chair Sharon Bowles comments on Designated Commissioner hearings: Lib Dem MEP
Sharon Bowles, who chairs the European Parliament's powerful Economic and Monetary Affairs Committee, has
completed a gruelling week of competency hearings for four proposed European Commissioners.
Sharon Bowles said: "All eyes were on Michel Barnier this week. There are some in the City of London who fear
having a Frenchman in charge of the Internal Market portfolio."
"In the wake of the financial crisis, there have been some key legislative proposals designed to protect EU Member
States, including the UK, from another credit crunch and near banking collapse. This legislation will change the
economic terrain of Europe forever. It is my job to ensure that the Economic and Monetary Affairs Committee
makes this proposed legislation workable."
"This week's Commissioner Hearings in Brussels were all about making sure these new Commissioners are up to
the task and work closely with MEPs from an early stage. This is particularly relevant in financial services and I
presented some key commitments to the Commission candidates. Both Michel Barnier and Joaquin Almunia signed
up to their ‘pledges’; I am pleased to say willingly, which is a great start."
ECOFIN Council conclusions on Commission report on Greek government deficit and debt statistics: The
Council WELCOMES the Commission's examination of the issues regarding the Greek government deficit and debt
statistics, in line with the request of the ECOFIN Council in November 2009; the Council STRESSES that the
outstanding issues identified in the Report of the Commission must be addressed as a matter of priority, as they
are fundamental to the economic policy surveillance process of the EU and EMU.
In the light of its concerns, the Council strongly URGES the Greek government to ensure that the outstanding
methodological issues and technical procedures in the Greek national services, as well as the improvements to the
governance and institutional structures as identified in the report, are properly addressed. The Council will monitor
the progress at its forthcoming meetings and will revert at its next meeting in February.
Banking
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BBA statement on US banking levy – UK and US measures differed widely
The International Banking Federation calls for Colleges of Supervisors to better manage risk
UK Treasury calls for more choice in business finance – proposals for reform to follow later this year
NVB's reaction to the Basel proposals on crisis management – more focus on early intervention mechanism needed
European banks consider the Basel Committee proposals on capital requirement a starting point for discussion
CEBS amends guidelines on common reporting for Capital Requirement Directive - COREP
EBF economic outlook for 2010: a bumpy road to recovery
CEBS consults on draft guidelines on the management of operational risk in market-related activities
CEBS publishes guidelines on operational risk mitigation techniques
CEBS publishes its draft guidelines for the operational functioning of colleges under CRD II
UK Treasury consults on plans to manage investment bank failures
Basel Committee consults on liquidity risk measurement, standards and monitoring
Basel Committee consults on liquidity risk measurement, standards and monitoring:
The Committee
proposes to raise the quality, consistency and transparency of the Tier 1 capital base. In addition, it is also
harmonising the other elements of the capital structure. It also proposes to strengthen the capital requirements for
counterparty credit risk exposures arising from derivatives, repos and securities financing activities. These
measures are also intended to increase incentives to move OTC derivative exposures to central counterparties and
exchanges. The Committee will also promote further convergence in the measurement, management and
supervision of operational risk. A leverage ratio as a supplementary measure to the Basel II risk-based framework
will also be introduced. To ensure comparability, the details of the leverage ratio will be harmonised internationally,
fully adjusting for any remaining differences in accounting.
With regard to capital buffers, the Committee is promoting more forward-looking provisioning based on expected
losses, which captures actual losses more transparently and is also less pro-cyclical than the current "incurred loss"
provisioning model.
Furthermore, Basel proposes introducing a global minimum liquidity standard for internationally active banks that
includes a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio. It
also includes a common set of monitoring metrics to assist supervisors in identifying and analysing liquidity risk
trends at both the bank and system wide level.
European banks consider the Basel Committee proposals on capital requirement a starting point for
discussion: The European Banking Federation (EBF) acknowledges the approach adopted by the Basel Committee
on assessing the impact of the new capital requirement measures, as part of its comprehensive response to
address the lessons of the crisis. In this respect, it reiterates its concerns about the potential adverse consequences
of significantly higher capital requirements on the financing of the economy.
The EBF supports the need for international harmonisation of prudential and accounting standards, thus ensuring a
level playing field between banks. It stresses that otherwise, the variations in national definitions of capital,
leverage ratios, and the provisioning systems and countercyclical buffers will create an unlevel playing field, with
potential risks to systemic stability as a result.
European banks particularly welcome the fact that their recurrent call for a comprehensive assessment has been
taken into consideration – not only of all the measures in accumulation, but also of their calibration and
interdependencies. European banks are committed to actively contributing to the assessment process as essential
stakeholders.
The EBF is also appreciative of the awareness of supervisors to introduce the necessary phase-in measures and
grandfathering arrangements for a sufficiently long period to ensure a smooth transition to the new standards. “We
are glad that the Basel Committee recognises the link between extended capital requirements and the banks’
capacity to lend”, declared Guido Ravoet, Secretary General of the EBF. “There is indeed an important risk of
adverse consequences if capital requirements are extended beyond a certain degree of stability.”
The International Banking Federation calls for Colleges of Supervisors to better manage risk: A more
globally coordinated approach to liquidity reporting by banks is needed the International Banking Federation
[IBFed] said today. The IBFed called on the Basel Committee to use colleges of supervisors to help tailor liquidity
reporting requirements for individual banks, based on a menu of different reporting options.
The IBFed also said that this approach would improve the international stability of the banking system by cutting
out much of the multiple reporting that currently goes on and which is costly and introduces unnecessary
duplication into the system. Simon Hills, chair of IBFed‟s Basel working party, said: “The IBFed wants liquidity
reporting to be tailored to individual banks because a „one size fits all‟ approach is not the best way to ensure that
banks properly manage risk.”
NVB's reaction to the Basel proposals on crisis management – more focus on early intervention
mechanism needed: The design and implementation of banking resolution systems is an issue which is very
important to the member base of The Netherlands Bankers’ Association (NVB).
NVB notes that a banking resolution framework is a very complex framework to set up, given differences in
supervisory tools, differences in national legislation and a lack of cooperation between supervisors. Therefore,
enough time should be taken to think through every aspect thoroughly.
NVB emphasizes furthermore that banking resolution is just one element in the total framework of crisis
management. The NVB feels that far more attention should be given to early intervention mechanisms that prevent
a (cross-border) bank from failing. In its view, the supervisors and national authorities already have an array of
tools at their disposal to execute early interventions. Practical experience has shown that these tools are – in our
view – not used sufficiently. The tools that are available to supervisors should also be harmonized on an
international level.
CEBS consults on draft guidelines on the management of operational risk in market-related activities:
Following the publication of CEBS’s high-level principles on Internal Governance (CEBS Guidelines on the
Application of the Supervisory Review and Evaluation Process - Section 2), its draft high-level principles on risk
management and remuneration policies, CEBS now introduces more specific principles and implementation
measures for the identification, assessment, control and monitoring of operational risk in market-related activities.
CEBS publishes guidelines on operational risk mitigation techniques: The Committee of European Banking
Supervisors (CEBS) today publishes its guidelines on operational risk mitigation techniques following a three-month
public consultation period and a public hearing. These guidelines, which build on the provisions of the Capital
Requirements Directive (CRD) and CEBS’s Guidelines on the Implementation, Validation and Assessment of AMA
and IRB Approaches (Implementation Guidelines – GL10), provide supervisory expectations and clarification on the
recognition of risk transfer instruments within the AMA.
CEBS publishes its draft guidelines for the operational functioning of colleges under CRD II: This requires
the establishment of supervisory colleges as an instrument for stronger coordination and cooperation whereby
competent authorities reach agreement on key supervisory tasks. The colleges are expected to facilitate the
handling of ongoing supervision and also to play a role in both the preparation for and handling of emergency
situations.
The draft guidelines aim to complement the CRD provisions where additional guidance appears necessary in order
to avoid inconsistencies and regulatory arbitrage, which could result from differences in the approaches and rules
applied by the various colleges and the application of discretion by Member States.
The guidelines, which are structured in the form of short guidelines followed by an explanatory text, have been
designed to be as practical as possible. They aim to provide guidance for the different tasks to be performed by the
supervisors involved within a college, starting with the process of setting up the college. Guidance is also provided
in relation to the organisation of the exchange of information among college members; as well as in relation to
communication with management of the supervised institutions; the voluntary sharing and delegation of tasks and
the adoption of joint decisions – on the permission for the usage of internal models and on the adequacy of own
funds held by the group and its entities - provided for in the CRD. Supervisors within colleges are also provided
with guidance for taking due account of macro-prudential risks and for the planning and coordination of activities,
not only in going concern, but also in emergency situations.
CEBS amends guidelines on common reporting for Capital Requirement Directive - COREP: CEBS today
publishes the revised framework on Common Reporting (COREP). The COREP templates have been amended to
incorporate changes of the CRD (directives 2009/27/EC) as well as CRD II amendments, and will be applicable by
31 December 2010.
These changes affect the following COREP templates:
·
CRD amendments regarding the definition of capital (treatment of hybrid instruments) lead to changes in the
CA template.
·
CRD provisions concerning the exposure value have minor impacts on CR SA and CR IRB templates which are
limited to changes of legal references.
·
The CR SEC templates now include new CRD retention requirements.
·
The amendments of OPR templates relate to the implementation of a new business line.
UK Treasury consults on plans to manage investment bank failures: The report outlines a package of more
than 30 policy initiatives, designed to mitigate the impact of any future investment banking failure.
The
Government is seeking stakeholder feedback on its proposals. A further document with final proposals, and draft
secondary legislation as necessary, will be published in 2010. The Government accepts the need for cross-border
cooperation to address the failure of a systemically important firm. It will consider the measures required to
achieve this; for example, by seeking the mutual recognition of international regimes that have similar safeguards
as the UK.
~
Securities
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CESR introduces new working structures to increase efficiency and prepare for a smooth transition to ESMA
ECB to set back T2S timetable to beyond 2013
Eurex newsletter emphasizes G20 commitment to reach CCP clearing for all standardized OTC derivative contracts
by end-2012
FESE publishes the European Equity Market Report – an accurate comparison of trading statistics across trading
venues
FT: IOSCO pact reshapes market enforcement - easier to track bad actors across international markets
Joint Forum Report: Review of the differentiated nature and scope of financial regulation
EDHEC-Risk gives a global overview of the current initiatives on regulating OTC markets
EACT: leading European companies unite against proposed European derivatives reform
ISDA reports on portfolio reconciliation feasibility - advances understanding and promotes better collateral
management practices
LSE to take control of pan-European trading platform Turquoise
ECB consults on ABS loan-by-loan information
AFG response to CESR Consultation Paper “Inducements: Good and poor practices”
UK authorities object forcing standardised OTC contracts to organised trading platforms
UK Lords Committee launches inquiry into supervision of derivatives markets in the EU
CESR introduces new working structures to increase efficiency and prepare for a smooth transition to
ESMA: These changes in CESR’s working structures will streamline processes and redefine the role of CESR’s
technical groups and of its plenary meetings, bring together all the national chairs and act as the Committee’s
instance for final decision-taking. As a result, from January 2010, CESR will conduct its work through SCs. These
will deal with issues ranging from corporate reporting and finance to market surveillance and enforcement or
secondary markets, intermediaries and credit-rating agencies.
CESR’s restructuring of has been considered carefully to ensure that the new responsibilities that the future new
authority, known as the European and Markets Authority (ESMA), is anticipated to receive, could be carried out
effectively, if necessary, within this structure. By re-modelling CESR’s internal organisation now, it should be
possible to ensure a smooth transition to ESMA, once it is created.
UK authorities object to forcing standardised OTC contracts onto organised trading platforms: A greater
standardisation of products should not be the only criterion to consider when determining whether a product should
be cleared, the UK authorities’ state and strongly support uniform set of high standards for the clearing houses for
eligible derivatives, supervised by home state regulators.
Trades which are not centrally cleared should be subject to robust bilateral collateralisation processes and/or the
appropriate risk-proportionate capital charge. The UK calls for the registration of all OTC derivative transactions in
a trade repository. Given the requested outcome, the FSA and UK Treasury sees no need forcing trade flow through
organised trading platforms. “We urge legislators on both sides of the Atlantic to approach this regulatory tool with
caution as regulatory objectives can be achieved by other means”, they say.
EACT: leading European companies unite against proposed European derivatives reform: More than 160
non-financial companies based in Europe (including BAE Systems, Air France and Daimler) have signed a letter to
the Commissioners of the European Union to urge reconsideration of the proposals being drafted to regulate the
derivatives market. The letter has been prepared by the European Association of Corporate Treasurers (EACT), a
grouping of 20 national associations representing treasury and finance professionals from countries in Europe.
The EACT and end-users are concerned by the unintended consequences of the European Commission’s proposals,
which, as published, may threaten economic recovery by draining companies’ liquidity into mandatory
collateralisation of contracts, reducing the amount of hedging (thereby increasing business risk) and raising costs
for those prudently hedging their risks. The European Commission is evaluating its approach and preparing for an
impact assessment. The EACT and end-users are encouraging consideration of how the existing, mature use of OTC
derivatives can be maintained, most likely through some form of explicit recognition that the regulatory proposals
are not intended to extend to non-financial companies. The EACT is committed to supporting the European
Commission’s efforts.
ISDA reports on portfolio reconciliation feasibility - advances understanding and promotes better
collateral management practices: Risk.net reports that the over-the-counter derivatives markets are awaiting
two further publications from the International Swaps and Derivatives Association on collateralised portfolio
reconciliation before fully understanding the scope and scale of the challenges the industry currently faces.
The study discusses the considerations that exist for expansion of a frequent reconciliation for collateral portfolios
beyond the group of 15 major dealers that regularly report progress and commitments relating to industry
infrastructure projects ('Fed 15'). It has been undertaken by representatives of dealer and buy-side firms under the
guidance of the ISDA Collateral Committee.
Eurex newsletter emphasizes G20 commitment to reach CCP clearing for all standardized OTC
derivative contracts by end-2012: At its Pittsburgh summit, the G20 reiterated the importance of a central
counterparty (CCP) for global financial markets demanding a CCP clearing for all standardized OTC derivative
contracts to be introduced by end-2012 at the latest. Eurex Clearing, Europe’s largest central counterparty,
responded to these political demands by developing and introducing Eurex Credit Clear, the European solution for
centralized CDS clearing. In February 2009, nine large trading houses had committed themselves to the European
Commission in the EU for clearing European CDS contracts. Five months later, on July 30, Eurex Clearing
successfully completed the CDS clearing cycle. Throughout 2009, Eurex Clearing processed total monthly gross risk
exposures in excess of EUR 48 billion, about 1.8 billion transactions overall, with OTC trades accounting for 40 per
cent. The number of clearing members rose by eight in 2009, bringing the total to 101 institutions.
Since November, Eurex customers have been able to trade EEX electricity derivatives via their existing Eurex
connection. And the latest initiative has been introduced as recently as 18 January, when equity options on U.K.
benchmark stocks, denominated in pence and with settlement in their home market, were launched. Eurex took a
pioneering role by exploring new asset classes: During 2009 it became the first European exchange to launch
hurricane and real estate futures contracts. Its range of commodity products was expanded by futures and options
on gold and silver, and by commodity index derivatives.
EDHEC-Risk gives a global overview of the current initiatives on regulating OTC markets: Dr Arjuna
Sittampalam, Research Associate with EDHEC-Risk Institute, has written about the differences between the main
regulatory reforms proposed in the US and in EU. Concerning standardisation of OTC contracts, Mr Sittampalam
writes that “some contracts can be standardised in the sense that at issue they can follow the same format. This
process is now being applied to many European CDSs, reflecting progress in this field. Natasha de Teran,
technology correspondent of the Financial News, feels that the authorities are struggling with the definition of
standardisation, and they might have to be for some time to come. If her surmise is correct, then it will be a while
before the proposals become actual rules.”
FT: IOSCO pact reshapes market enforcement - easier to track bad actors across international markets:
The Financial Times report that IOSCO has managed to reach a high level of information sharing among 63
countries on insider trading and market abuse. This seemed to be impossible four years ago when IOSCO asked all
115 securities commissions worldwide to share information. Some regulators have noted privately that the IOSCO
agreement could lead to some squabbles over time if some of the biggest and strongest enforcement agencies
prove reluctant to share the fruits of their labours with regulators that are not seen as sufficiently independent or
professional.
ECB consults on ABS loan-by-loan information: To provide the ABS loan-by-loan information, a data-handling
infrastructure (data portals) will be needed to collect and store the information. The number and organisation of
the data portals are still discussed. Purpose of the consultation is to increase the disclosure standards for the
securitisation markets. However, loan-by-loan information would not be required for all asset classes because for
some of the more granular and well-diversified ABSs, such as consumer loan ABSs, pool or summarised loan-level
information may suffice.
AFG response to CESR Consultation Paper “Inducements: Good and poor practices”: We welcome the
purpose of clarifying the Article 26 of the level 2 Directive which is not easy to understand and to apply. However,
we would like to stress that ongoing payments to a third party, e.g. a distributor, are to be welcomed when they
help to establish a long term and stable relationship in the best interest of the client.
We disagree with CESR’s general statement that there are very significant potential conflicts when investment firms
receive payments from a third party, e.g. a distributor or product provider. We consider that such a statement is a
move back from CESR’s recommendations published in 2007. There is not necessarily a conflict of interest if the
investment firm has fulfilled its obligations under the MIFID inducements rules (compliance with Article 26(b) of the
Level 2 Directive).
ECB to set back T2S timetable to beyond 2013: The Target2 Securities (T2S) system was conceived by the
ECB as a mechanism for cutting cross-border trading costs through the creation of a streamlined pan-European
platform for securities settlement against central bank money. Citing "people familiar with the matter", the FT says
that an ECB "advisory group" on T2S is set to meet in Amsterdam on Friday to discuss timetabling and the prospect
of project over-run. The delays will come as no surprise to anybody who sat in on a heated T2S debate conducted
at last year's Sibos in Hong Kong. It descended into an angry spat between agent banks, securities depositories
and the central bank over costs, timetabling and information transparency.
Insurance
11 Jan 10 Joint Forum Report: Review of the differentiated
23 Dec 09
IAIS: Global reinsurers remain strong despite challenges
nature
and
scope
of
financial
regulation
Joint Forum Report: Review of the differentiated nature and scope of financial regulation: The Joint
Forum has released its report Review of the Differentiated Nature and Scope of Financial Regulation - Key Issues
and Recommendations. This review was requested by the G20 through the Financial Stability Board.
The report analyses key issues arising from the differentiated nature of financial regulation in the international
banking, securities and insurance sectors. It also addresses gaps arising from the scope of regulation as it relates
to different financial activities, with a particular focus on certain unregulated or lightly regulated entities or
activities. The objectives of the review were to identify potential areas where systemic risks may not be fully
captured in the current regulatory framework and to make recommendations on needed improvements to
strengthen regulation of the financial system.
The report's recommendations address five specific areas:
1. Issues arising from regulatory differences across the three sectors, including with respect to similar financial
products;
2. Supervision and regulation of financial groups, focusing on unregulated entities within those groups;
3. Residential mortgage origination, focusing on minimum underwriting standards consistently implemented by
different types of mortgage providers;
4. Hedge funds, especially those that present systemic risk; and
5. Credit risk transfer, focusing on credit default swaps and financial guarantee insurance.
John Dugan, Chair of the Joint Forum until the end of 2009 and Comptroller of the Currency in the United States,
said today: "This paper takes a focused look at certain regulatory gaps that became apparent during the crisis.
There are some key recommendations in this report that, once implemented, will reduce those gaps and strengthen
regulation of the financial system. Consistency in regulation and similar supervision for similar activities are key
principles for effective oversight of systemic risks. This report sets the stage for additional important work that will
lead to greater convergence of the supervision of financial activities and firms."
IAIS: Global reinsurers remain strong despite challenges: The global reinsurance market has demonstrated
robustness and resilience despite the combined challenges of sustained catastrophic losses and the historically low
investment environment that manifested in 2008.
This is the key finding of the International Association of Insurance Supervisors (IAIS) Global Reinsurance Market
Report 2009, released today.
Reinsurers play an important role in the functioning of efficient insurance markets through their shock absorbing
capacity, including coverage against major reinsured natural catastrophes. The report builds on the unique data
provided by 51 leading global reinsurers worldwide, which have been actively engaged with the IAIS in generating
knowledge on reinsurance in order to better understand, regulate and supervise this key financial industry.
In spite of 2008’s challenging environment,
strength and contributing to both the stability
individual insurance customers. Reinsurers
fundamentals of the reinsurance business in
general, and the financial sector in particular.
reinsurers returned an overall positive result, indicating industry
of the global insurance markets as well as ultimately the security of
continued to focus on diversified risk taking, drawing on the
order to navigate a particularly turbulent year for the economy in
Jeremy Cox, Chair of the Reinsurance Transparency Subgroup, the working party in charge of the study noted that
“reinsurers suffered comparatively less damage on the asset side of their balance sheets in 2008 compared to other
financial sectors”.
Peter Braumüller, Chair of the IAIS Executive Committee, emphasised that “despite the ongoing financial turmoil,
the global reinsurance market has demonstrated robustness and resilience.” However, he stressed that the IAIS
will continue to exercise macro prudential surveillance of the sector, carefully tracking key risks and trends in
reinsurance, and sharing the findings with the international supervisory community.
Asset Management
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EVCA response to the European Commission on its future EU 2020 Strategy
Spanish Presidency notes on AIFMD - follows work done by the Swedish Presidency
CESR publishes consolidated information on UCITS depositary obligation for all 29 CESR Members
Hedge week: UCITS IV Directive is not bringing the operational cost reductions it was supposed to
European and North American pension funds consider shift back into property
Hedge Week: report shows increased competition for raising hedge fund capital in 2010
World Economic Forum report on globalization of alternative investments
CESR advice on mergers, master-feeder structures and cross-border notification of UCITS
Swedish Presidency progress report on AIFMD – discussions continue
Spanish Presidency notes on AIFMD - follows work done by the Swedish Presidency: It analyzes the
regulatory models embedded in both the Council’s and the Parliament’s drafts to describe and compare the options
and solutions put forward by both institutions. The Presidency wants delegations’ positions on the different options
and solutions put forward by both texts. In seeking the common ground, the following topics have raised the most
controversial viewpoints in relation to the basic structure of the Directive:
1. Scope
2. Valuation
3. Depositaries
4. Remuneration policies
5. Leverage
6. Disclosure requirements for funds controlling listed and non listed companies
7. Third country regime
EVCA response to the European Commission on its future EU 2020 Strategy: EVCA welcomes the
opportunity to contribute to this consultation.
EVCA shares the overall approach taken by the European
Commission on its vision for 2020 and, in particular, welcomes the Commission’s objectives on enhancing
innovation, entrepreneurship, education and skills while fully exploiting the single market. After more than ten
years since the adoption of the Risk Capital Action Plan, RCAP, EVCA calls on the European Commission and the
other EU institutions, among other things, to:
1.
Rethink its policy strategy on venture capital. A thriving European Venture capital industry can clearly be one
very important driver for EU innovation policy, by supporting Europe’s high potential small and medium-sized
enterprises. The aim should be to develop a self-sustaining and significantly larger European venture capital
industry which can compete globally, both for investors and for new innovative investments. At the same time, the
industry’s dependence on public finances should be reduced over the medium to long term by increasing private
investors’ share.
2.
Convene an expert group to analyse the existing barriers to the further expansion of the Europe’s venture
capital industry.
3.
Lighten the burden of social charges, taxation and red tape for young innovative companies.
World Economic Forum report on globalization of alternative investments: This paper looks at the macroeconomic impact of private equity by focusing on its impact on industry performance and cyclicality. This study
examines the impact of private equity investments across 20 industries in 26 major OECD nations between 1991
and 2007. Among the key findings are the following:
• Industries where private equity funds have been active in the past five years grow more rapidly than other
sectors, whether measured using total production, value added or employment. In industries with private equity
investments, there are few significant differences between industries with a low and high level of private equity
activity.
• Activity in industries with private equity backing appears to be no more volatile in the face of industry cycles than
in other industries, and sometimes less so. The reduced volatility is particularly apparent in employment.
The results are essentially unchanged if we only consider the impact on industry performance of private equity
investments made between five and two years earlier.
• Industries with private equity activity experience growth more rapidly (as measured by total production, value
added and employment) and are no more volatile in the face of industry cycles than other industries. In some
cases, industries with private equity activity are less volatile (as evidenced in terms of employment).
• Modest levels of direct government venture capital support and indirect encouragement (e.g., through subsidies
and tax concessions), in conjunction with private financing, could potentially augment the performance of young
enterprises. Public support seems most effective when provided at a national or international organization level.
CESR advice on mergers, master-feeder structures and cross-border notification of UCITS: CESR received
a provisional request for technical advice on possible implementing measures concerning the future UCITS Directive
and this CESR technical advice is related to part III. It covers fund mergers; implementing measures concerning
master-feeder structures; notification procedures.
CESR publishes consolidated information on UCITS depositary obligation for all 29 CESR Members: Since
late 2008, CESR has been working on a number of issues related to UCITS depositaries. At the outset, the focus
was on assessing the impact of the Madoff fraud on the fund industry; this work was then widened to include
consideration of the duties and responsibilities of UCITS depositaries. In this context, a mapping exercise was
carried out among CESR Members to establish how the various rules on depositary obligations have been
implemented in Member States. A high-level summary of that mapping exercise was included as an annex to
CESR’s response to the Commission’s consultation on the UCITS depositary function (Ref. CESR/09-781 published
on 28 September 2009).
However, since the mapping work began early last year, there have been a number of requests from external
stakeholders to have access to the detailed, country-level information that had been collected. The Table presented
by CESR contains information on the requirements in place in each CESR Member in particular areas.
Hedge week: UCITS IV Directive is not bringing the operational cost reductions it was supposed to:
According to the survey, the new UCITS IV Directive is not bringing the operational cost reductions many European
investment fund asset managers assumed, but they are still finding benefits around business model alignment. In a
poll of 98 European investment fund participants, 49 per cent said that business model alignment with UCITS IV is
the biggest driver for improving their operating model. This compared to 37 per cent that identified cost efficiency.
With 18 months before the July 2011 implementation deadline, a fifth of the funds polled have not started work
relating to the new UCITS IV. Less than a third have already started work on the path to implementation either by
appointing a steering committee or conducting high level analysis.
Corporate Governance
21 Jan 10 FSA Lord Turner calls for close engagement between Accounting Standard-Setters and prudential regulators of
banks
21 Jan 10 IPSASB publishes three new standards for accounting and disclosure of financial instruments
20 Jan 10 Financial Reporting Council consults on stewardship code for institutional investors
20 Jan 10 IAASB issues Q&A to raise awareness of XBRL uses in business reporting
18 Jan 10 IFAC Survey shows accountants as advocates for small business and global standards
13 Jan 10 IAESB newsletter explains in detail the newly released Framework for International Education Standards for
Professional Accountants
11 Jan 10 2010 IFRIC meeting - IAS 39 still a remaining issue - fair value application and the bifurcation of an embedded
foreign currency derivative
06 Jan 10 IASB revises proposals on measuring liabilities for asset decommissioning, legal disputes and similar items
06 Jan 10 IPSASB achieves its goal of substantial convergence with new or improved IFRSs
04 Jan 10 ACCA calls for improved dialogue between regulators and businesses in 2010
18 Dec 09 3 Level 3 Committees publish a call for evidence on cross-sectoral internal governance issues
2010 The International Financial Reporting Interpretations Committee (IFRIC) meeting - IAS 39 still a
remaining issue - fair value application and the bifurcation of an embedded foreign currency derivative.
The IFRIC re-discussed the issue, which was previously discussed at the November 2009 IFRIC meeting. The staff
noted that based on the additional outreach performed there was a widespread diversity in practice that was not
limited only to the energy sector. Nonetheless, the staff noted that, when IFRS 9 was being finalised, the IASB
agreed to reconsider the scope of IAS 39 at a later stage of the IAS 39 replacement project. The financial
instruments team already considered that issue in connection the current project on Hedge Accounting. Since the
Board will amend IFRS 9 and consider changes to scope of IAS 39 and hedge accounting soon (IFRS 9 is expected
to be finalised in 2010), the staff asked the IFRIC not to add the item to its agenda as it would be addressed by the
Board. The IFRIC agreed. Another 11 standards were discussed in detail.
IASB revises proposals on measuring liabilities for asset decommissioning, legal disputes and similar
items: The main aims of the project are:
• To align the criteria in IAS 37 for recognising a liability with those in other IFRSs. At present, IAS 37 requires an
obligation to be recognised as a liability only if it is probable (i.e. more likely than not) that the obligation will result
in an outflow of cash or other resources from the entity. Other standards, such as IFRS 3 Business Combinations
and IAS 39 Financial Instruments: Recognition and Measurement, do not apply this ‘probability of outflows’
criterion for recognising liabilities.
• to eliminate some differences between IAS 37 and US generally accepted accounting principles (GAAP)—in
particular, differences in the time at which entities recognise costs of restructuring their businesses.
• To clarify the measurement of liabilities in IAS 37. At present the measurement requirements in IAS 37 are
vague. As a result, entities use different measures, making it difficult for capital providers to compare their financial
statements.
ACCA calls for improved dialogue between regulators and businesses in 2010: Regulators and businesses
need to be able to engage in a common sense business dialogue to ensure that global financial regulation heads in
the right direction in 2010, says ACCA. It calls for changes, including better ethics training for all directors
(especially non-executive directors), the implementation of a US-style Consumer Financial Protection Agency in
Europe and the need for company boards to urgently upgrade their risk functions. The paper argues that much
remains to be done to ensure non-executive directors exercise meaningful and effective oversight of actions of
executives in large complex banks. They particularly need help in obtaining assurance that agreed board policies
have actually been implemented by management.
Financial Reporting Council consults on stewardship code for institutional investors: The governance
standard for UK listed companies is the Combined Code on Corporate Governance (which is to be renamed the UK
Corporate Governance Code). Shareholders are expected to judge the explanation on its merits and either accept
or challenge it. The effectiveness of this approach depends on sufficient investors being willing, directly or
indirectly, to put resources into engaging actively with the companies in which they invest.
The FRC has begun consultation on the content, operation and oversight of a stewardship code that will set out
good practice for institutional investors when engaging with the UK listed companies in which they invest. The FRC
agreed to take on responsibility of oversight of the proposed code at the request of the Government, following Sir
David Walker’s report on the corporate governance of banks and other financial institutions in November 2009.
FSA Lord Turner calls for close engagement between Accounting Standard-Setters and prudential
regulators of banks: Financial Services Authority (FSA) Chairman, Lord Turner, today called for close
engagement between global accounting standard-setters and those responsible for prudential regulation of the
banking sector to address issues arising from the unique systemic nature of banks.
He argued that banks must be viewed differently from any other sector of the economy, including the rest of the
financial sector, and that accounting standards relevant to banks need to reflect these differences. He highlighted
two aspects of existing bank accounting practice which contribute to the problem of pro-cyclicality and are,
therefore, intrinsically tied to macro-prudential and macro-economic concerns:
Firstly, the accounting treatment of loan losses within the banking book. This bases loan loss provisions on
evidence of already current credit impairment and does not allow for reasonable judgements on future potential
losses. Second, the ‘fair value’ valuation approach (predominantly ‘mark-to-market’) in the trading book, which
recognises unrealised gains or losses and which, especially when applied to illiquid securities, can drive harmful
volatility in both upswings and downswings.
IPSASB publishes three new standards for accounting and disclosure of financial instruments: The
International Public Sector Accounting Standards Board (IPSASB) has published three new standards that cover all
aspects of the accounting for, and disclosure of, financial instruments: International Public Sector Accounting
Standard (IPSAS) 28, Financial Instruments: Presentation; IPSAS 29, Financial Instruments: Recognition and
Measurement; and IPSAS 30, Financial Instruments: Disclosures. They fill a significant gap in the IPSASB literature.
"These new IPSASs provide a coherent set of requirements that enhance accountability for financial instruments in
the public sector; this need was reinforced by the global financial crisis, and the scale and range of interventions
made by governments," states Andreas Bergmann, who became Chair of the IPSASB on January 1 2010. The three
new IPSASs are primarily drawn from the International Accounting Standards Board's standards, but address a
number of public sector-specific issues.
IAASB issues Q&A to raise awareness of XBRL uses in business reporting: Recognizing the growing
international use of XBRL - a language for the electronic communication of business and financial data that is
changing business reporting around the world - the staff of the International Auditing and Assurance Standards
Board (IAASB) has developed a new question-and-answer publication. It is designed to raise awareness about how
XBRL-tagged data is prepared and how it may affect financial reporting.
Entitled XBRL: The Emerging Landscape, the publication explains that the IAASB's current International Standards
on Auditing (ISAs) were not developed with XBRL in mind and, accordingly, do not require auditors to perform
procedures on XBRL-tagged data as part of a financial statement audit.
IFAC Survey shows accountants as advocates for small business and global standards: As world
economies recover from the global financial crisis, the Third Annual Global Leadership Survey of the International
Federation of Accountants (IFAC) revealed its membership as vocal advocates for small and mid-size businesses, as
well as for the adoption of global accounting and auditing standards. It also highlighted corporate governance
enhancements in jurisdictions around the world.
Public sector finance improvements. Many respondents reported their countries were in the process of adopting the
International Public Sector Accounting Standards (IPSASs), which can provide reliable information about
government finances which, in the context of the crisis, is so important.
Corporate governance enhancements: When survey participants were asked whether there had been
enhancements to corporate governance in their jurisdictions, the majority reported that there had either been
improvements, that actions were in process, or that such changes were being considered. In particular, they
reported the adoption of the Organisation for Economic Co-operation and Development's (OECD) good governance
principles.
Competition
20 Jan 10
14 Jan 10
08 Jan 10
04 Jan 10
Commission requests Spain to limit aid given to savings banks
Commission approves Hungarian liquidity support scheme for the financial system
Future Competition Commissioner Almunia wants a "successful exit from the crisis" from a competition policy
perspective
Commission approves temporary rescue of BayernLB’s subsidiary Hypo Group Alpe Adria
See full report on Commissioner Almunia’s Hearing before the Econ Committee of the European
Parliament.
Future Competition Commissioner Almunia wants a "successful exit from the crisis" from a competition
policy perspective: Spanish newspapers are reporting Almunia's competition priorities. These include an in-depth
analysis of compensation issues for victims of monopolies, taking into account the desirability of avoiding the
excessive number of disputes which have occurred in the United States.
Almunia said his priorities will include to "ensure that competition policy supports a successful exit from the crisis,
while maintaining equality conditions and protecting the internal market ". Almunia will be responsible for assessing
state aid to companies. Brussels has provided the competition sector with more flexible regulations after the
outbreak of the crisis.
In recent months, the EC has given green light to state aid plans to refloat the financial system and to protect
other sectors of the crash. In addition, for Almunia, the crisis has made clear it is necessary to revise the procedure
for review of State aid and modernize "the way in which these investigations are conducted. Among his objectives
over the next five years, the incoming Commissioner intends to conduct in-depth analyses on the issue of
compensation to victims of monopolies, taking into account the desirability of avoiding the excessive number of
disputes that occur in the United States in this field.
Commission requests Spain to limit aid given to savings banks: The Spanish government scheme was
created to help crisis-hit banks avert any solvency problems. In a move that may spur consolidation among the
country's savings banks, Spain set up the 9-billion-euro ($13 billion) bank restructuring fund (FROB) in June last
year, allowing lenders to borrow up to 90 billion Euros. 11 billion Euros have already been given to the financial
institutions.
FROB’s failure to approve the restructuring has delayed the savings bank sector integration process. There are
eight (publicly acknowledged) merger operations in progress. The two main mergers involving Catalan saving
banks will be postponed until the Commission has ratified the FROB.
Commission approves Hungarian liquidity support scheme for the financial system: The European
Commission has approved under EU state aid rules a Hungarian measure aimed at providing liquidity to eligible
financial institutions in Hungary to support lending to the economy. The Commission is satisfied that the measure is
compatible with the Treaty on the Functioning of the European Union (TFEU). In particular, the measure is
appropriate, necessary and proportional to support the Hungarian financial system against the exceptional
turbulence encountered by Hungarian banks in the midst of the global financial crisis, while limiting distortions of
competition.
Competition Commissioner Neelie Kroes said: "Despite its late notification, I am satisfied that the Hungarian
liquidity support scheme has been instrumental in helping financial institutions withstand the exceptional
turbulence on the financial markets without unduly distorting competition."
In late 2008 to early 2009, the Hungarian financial markets and economy were particularly affected by the global
financial crisis. Liquidity sources completely dried out for both financial institutions and the Hungarian State itself,
leaving the state with limited financing options and having to resort to external support in the form of a financing
package provided jointly by the IMF, the European Union and the World Bank in November 2008.
In this context, in March 2009 Hungary enacted a liquidity scheme aimed at providing loans to Hungarian financial
institutions to enable them to maintain lending to the real economy in spite of the severe liquidity shortage. The
liquidity support takes the form of non-subordinated, non-structured loans, with a maximum maturity and an entry
window open until 30 June 2010. To date, three Hungarian banks have benefited from the liquidity scheme since its
implementation in March 2009.
Commission approves temporary rescue of BayernLB’s subsidiary Hypo Group Alpe Adria: The European
Commission has approved the rescue of BayernLB's subsidiary Hypo Group Alpe Adria (HGAA) by Austria and Land
Carinthia for reasons of financial stability. At the same time, the Commission is extending its in-depth investigation,
opened on 12 May 2009, into the total aid received so far by both banks. HGAA will have to provide an in-depth
restructuring plan by end-March 2010. BayernLB has to revise the restructuring plan it has already submitted to
take due account of the new rescue aid to HGAA. The Commission has therefore decided to extend the scope of its
in-depth investigation to cover the new aid. In the meantime, the Commission has approved the measures
temporarily for a maximum period of up to six months as urgent rescue aid to remedy a serious disturbance in the
Austrian economy.
Competition Commissioner Neelie Kroes said: “I expect both BayernLB and Hypo Group Alpe Adria to submit
credible and substantiated restructuring plans to address the challenges emerging from this rescue operation and
to bring the aid measures fully in line with EU state aid rules."
In the autumn of 2009 an expert assessment established that HGAA would require significant write-downs reducing
its capital ratio to less than the regulatory required minimum. After intense discussions between the owners and
Austria, an agreement was reached on 14 December 2009 that Austria would acquire all shares of HGAA for a
symbolic price of 1 euro from each of its three owners, BayernLB, the Austrian insurance group GRAWE and Land
Carinthia. In addition, Austria and the owners decided to provide capital (Austria up to €450 million, Carinthia €200
million, GRAWE €30 million and BayernLB €825 million) and liquidity. BayernLB has to write down the full book
value of HGAA and has furthermore agreed to provide additional capital and funding.
As HGAA is a systemic bank in Austria and a number of countries in South-Eastern Europe, the Commission has
approved the new aid measures for a maximum period of up to six months. During this period, the Commission will
evaluate in detail whether the new state support is fully in line with EU state aid rules and, in particular, whether
the restructuring plan is likely to restore the viability of HGAA. The Commission will also investigate whether the
bank's owners sufficiently participate in the cost of restructuring.
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