The Association for Financial Markets in Europe (“AFME”) takes note of the agreement reached by the European Council relating to the Retail Investment Package, however, encourages further work and discussion on some key issues. Adam Farkas, Chief Executive Officer at AFME, said: “AFME notes all efforts made, and agreements reached, that are aimed at supporting retail investors who wish to invest in the EU’s capital markets. While the Council compromise is a significant improvement from the Commission’s proposal, it falls short on a number of issues, including inducements, best interest and suitability and appropriateness. Value for Money rightly continues to hold centre stage but the Council’s approach remains, in our view, unsatisfactory. We believe that further work and discussions are needed at Trilogues to reach a well calibrated, cohesive and proportionate RIS framework on these key issues”. Overall, based on our holistic assessment of the Council General Agreement, our view is that further work and discussions are needed on the following issues: Value for Money We still have reservations about many aspects of the proposed value for money framework, but support the overall acknowledgment that benchmarks are intended to be used as supervisory tools, rather than as a type of price regulation. We also welcome the additional degree of flexibility in how manufacturers and distributors may carry out their value for money analyses. However, we still have serious concerns about the interplay between benchmarks and peer group comparisons, the development and use of national benchmarks, and do not support making benchmarks and relevant data public. Inducements We are supportive of some of the inducement test criteria in Article 24a MiFID which, to an extent, alleviates our concerns that the new framework could amount to a de facto ban on inducements. However, AFME is extremely concerned that Article 24a(9) MiFID, which allows Member States discretion on the prohibition of, or restriction to, inducements, directly contradicts the objective of enhancing the EU competitiveness by harmonising and improving consistency of legislation and by reducing red tape. Best Interest We note, and strongly support, the removal of Article 24(1a) - letter c) MiFID from the new best interest test, which has been our consistent position since its introduction in the European Commission proposal last year. However, we remain concerned that the additional features concept from Article 24(1a) - letter c) has essentially been relocated to the suitability assessment. This further analysis exacerbates the complexity and granularity of the suitability assessment. Article 24(1a) - letter b) continues to present a strong focus on costs and remains ambiguous in its key elements. Timing We welcome the Council’s proposals for longer transposition (OJ + 30 months) and application (OJ + 36 months) windows, which will be necessary to implement the broad and deep set of MiFID changes. PRIIPS While we support the purpose of the reforms to increase retail investor participation and understanding, and to improve the PRIIPs KID, we do not support certain of the proposals, including those relating to page limits, performance scenarios and the inclusion of the new “Product at a Glance” and “How Sustainable is the Product” sections. We do not believe that these matters as currently proposed would serve their intended purpose. We look forward to engaging with the Co-Legislators and the European Commission as the negotiations evolve. – Ends –

The Association for Financial Markets in Europe (AFME) has today published its position paper ‘EU Securitisation back on track’ paper, which outlines its five-point plan to revive the securitisation market in the EU. In this paper, AFME aims to describe the different ways that securitisation can be used as a tool to support EU growth and strategic objectives, identify the regulatory hurdles that currently impede its impact and finally sets out a five point package of reforms to boost the trajectory of EU securitisation. These reforms importantly maintain the existing safeguards embedded within the regulation that prevents the proliferation of high leverage products under the banner of securitisation that originated in the US in the run up to the Global Financial Crisis. This package proposes measures that, when combined, should increase both the supply and demand for the product by: Increasing risk sensitivity within the bank prudential framework Reviving demand from the insurance sector by adjusting Solvency II calibrations Adjusting the treatment of securitisation within the Liquidity Coverage Ratio Introducing proportionality for investors conducting regulatory due diligence and, Fine-tuning regulatory reporting requirements and simplifying STS criteria for both traditional and synthetic securitisations. Speaking on the second day of Global ABS, the largest annual gathering of the securitisation industry and policy makers taking place this week in Barcelona, Adam Farkas, Chief Executive of AFME, said: “In recent months, we have been encouraged by the recognition shown by European policymakers of the vitally important role that securitisation can play in order for Europe to remain competitive and to be economically prosperous. We look forward to engaging with the European policy community and market participants to address and resolve current regulatory hurdles and support the return of a healthy securitisation market able to deliver the significant funding needs of Europe over the coming years”. Shaun Baddeley, Head of Securitisation at AFME, added: “As policy makers have come to acknowledge the valuable role that securitisation can play, there is increasing recognition that the combined effect of certain provisions within both the EU Securitisation Regulation and the EU Bank and Insurance Prudential Capital Frameworks have disincentivised EU investors and limited utility of the product as a funding tool by EU issuers. This consensus has grown in regard to the contribution securitisation can make to financing EU growth.” AFME’s ‘EU Securitisation back on track’ position paper is available here. – Ends –

The Association for Financial Markets in Europe (“AFME”) welcomes the opportunity to respond to the consultation by the Financial Conduct Authority (“FCA”) on Payment Optionality for Investment Research (FCA CP 24/7***). The FCA’s consultation on payment optionality for investment research seems consistent with our view that the optimal regime allows buyside firms to have the flexibility to determine how they obtain, and purchase research. However, we have concerns regarding the proportionality and workability of the proposed framework. In our view, it is characterised by unnecessary operational complexity which would result in the UK taking a significantly different approach to other financial centres. In particular, we are concerned that the guardrails proposed by the FCA are far more detailed than relevant MiFID provisions in EU legislation, or those required in the US. This may deter firms from availing themselves of the new payment optionality and inadvertently create cross-border frictions, rather than reduce them, as intended by the FCA. Adam Farkas, Chief Executive Officer at AFME, said: “AFME supports the principle of payment optionality. However, the FCA’s proposed framework may not be optimal because it is not sufficiently flexible compared to existing structures or structures available in other jurisdictions. Overall, our view is that the proposed regime would not underpin the Government’s wider commitment to enhance the UK’s ability to attract companies to list and to grow. While we support the FCA’s accelerated timeframe for this policy file, it is equally important that appropriate time is taken to consider industry feedback and that the regime delivers on the intended outcomes”. We look forward to further engaging with the FCA on this issue. – Ends –

The Association for Financial Markets in Europe (AFME) has today published the results of a survey undertaken to examine bank treasuries’ asset allocation drivers in relation to securitisation. The results of the survey demonstrate, amongst others, how various regulatory constraints prevent bank treasuries from fully utilising securitisation as part of their liquidity stress buffer. AFME has been advocating for the revision of the treatment of securitisation under the LCR and has consistently cautioned against drawing definitive conclusions about market participants’ appetite for securitisation based solely on the current (low) levels of investment activity. The LCR, which forms a critical part of the EU securitisation prudential framework, can play a key role in assisting the restoration of the EU securitisation market, if properly calibrated. Key findings of the survey are: Of the 25 respondents, 80% invest in securitisation in general and 80% of those invest in securitisation for High Quality Liquid Assets (HQLA) purposes. Reduced appetite for securitisation for HQLA purposes is predominantly due to regulatory constraints, such as haircut levels, LCR eligibility criteria and limited eligible asset availability. The sovereign debt crisis, Covid-19 and UK’s Liability-Driven Investment (LDI) crisis are all recent liquidity stress events which affected respondents’ HQLA books. Mixed views on ABS’ liquidity were expressed, likely driven by a recognition that on the one hand, lack of supply and reduced investor base create a shallow secondary market, whilst on the other hand, an investment grade floating rate product can be a strong source of liquidity in certain stressed scenarios, such as the UK’s LDI crisis during which ABS proved to be very liquid. Lastly, respondents noted that the following factors would facilitate future investments in ABS, namely (a) better treatment of securitisation under the LCR; (b) increased issuance; (c) better return on regulatory capital; and (d) a larger investor base. Speaking on the opening day of Global ABS, the largest annual gathering of the securitisation industry and policy makers taking place this week in Barcelona, Adam Farkas, Chief Executive of AFME, said: “In recent months, it has become clear that European policymakers recognise the vitally important role that securitisation needs to play in order for Europe to remain competitive and to be economically prosperous. The results of the survey give insight into one facet of the challenges arising from non risk sensitive  prudential frameworks. This is just one of a package of reforms needed to foster the return of a healthy securitisation market, which is needed to support the significant funding needs of Europe in over the coming years”. Shaun Baddeley, Head of Securitisation at AFME, added: “It is clear from the survey that lack of appetite by bank treasury functions for securitisation post implementation of LCR is directly linked to the overly onerous requirements and haircuts applied to the product in LCR and indirectly linked to the impact of overarching securitisation regulation upon supply and demand.  It is important we find regulatory solutions that ultimately create the right conditions for the return of a vibrant securitisation market.” AFME this week also published its Q1 2024 Securitisation Data report.  Key findings include: In Q1 2024, EUR 60.7 bn of securitised product was issued in Europe, an increase of 43.8% from Q4 2023 and an increase of 69.2% from Q1 2023. Of the EUR 60.7 bn issued, EUR 33.3 bn was placed, representing 54.9% of the total, compared to 67.3% of issuance in Q4 2023 and 55.4% of issuance in Q1 2023. Outstanding volumes (including CLOs) increased to EUR 1162.4 bn at the end of Q1 2024, a decrease of 1.5% QoQ and an increase of 2.4% YoY. Credit Quality: In Europe, upgrades comprised 87% of total rating actions by the main CRAs during Q1 2024, down from 90% of total rating actions during Q4 2023. STS issuance: In Q1 2024, EUR 14.4 bn of securitised product was notified as STS to ESMA and the FCA, representing 23.7% of the total issued volume in Q1 2024 (EUR 60.7 bn). Out of the EUR 14.4 bn in STS issuance, EUR 11.7 bn was placed, representing 35.1% of total placed issuance in Q1 2024 (EUR 33.3 bn). AFME’s LCR Securitisation Survey and Q1 2024 Securitisation Data report are both available.    – Ends –

Following the general approach reached today by the Council on the EU’s Directive on Faster and Safer Relief of Excess Withholding Taxes (‘FASTER’), Adam Farkas, CEO of the Association for Financial Markets in Europe (AFME), commented: “AFME strongly welcomes the aim to simplify and digitise withholding tax procedures within the EU. The FASTER Directive has been negotiated with remarkable speed, an encouraging sign that Member States recognise the urgency of addressing current inefficiencies in withholding tax reclaim processes. “Subject to formal adoption of the agreed text, AFME welcomes the creation of a common EU digital tax residence certificate as an important step to facilitate investors’ access to the new fast-track procedures relating to withholding tax. On several other operational aspects of the Directive, however, we would have liked to see a greater focus on simplification and harmonisation, for example through a common definition of beneficial ownership, which would enhance FASTER’s contribution to the Capital Markets Union. “The effectiveness of the new measures will depend on their implementation. It is crucial that this is accompanied by sufficient support and guidance for certified financial intermediaries, and we look forward to continuing our dialogue with policymakers during this phase of the process. “Member States and the Commission must remain vigilant to ensure that the new rules are workable on the ground and do not cause excessive administrative burden, which would run counter to the spirit of this Directive. Further steps to unlock cross-border investments should continue to be explored, informed by consultation of industry representatives”. – Ends –

AFME welcomes today’s European Parliament vote on its position as progress in the right direction, but needing further clarifications and refinement. These are goals we hope can be achieved as the Council agrees on its general approach and co-legislators begin negotiations. On the text adopted today in the EP’s plenary, Sahir Akbar, Head of Resolution Regulation at AFME said, “AFME continues to support the development of an effective recovery and resolution framework in the EU and the ongoing work to enhance resolvability. AFME has been closely involved in the development and implementation of the BRRD and SRMR, the development of TLAC, and related issues including deposit insurance, and supports the Eurogroup view that a consistent and effective framework for managing banks in distress is a critical part of the Banking Union. While today’s European Parliament vote is another step along the journey, details matter and we need to ensure each step taken does not undermine the progress made to date.” AFME believes that when co-legislators enter into negotiations they should focus, in particular, on the following elements: Enhancing the credibility, predictability and consistency of the CMDI framework, further enhancing financial stability, without adversely impacting for example the progress made by G-SIBs and large banks on their resolution planning and build-up of their minimum requirement for own funds and eligible liabilities (MREL). Not increasing contributions to mutualised funds, but better aligning contributions with the risk that an individual institution poses to the fund. This becomes even more important as the proposed revisions to the CMDI framework are likely to increase the use of Deposit Guarantee Scheme funds through the widening of the public interest assessment and change to the creditor hierarchy. Minimising risk to taxpayers and moral hazard by ensuring a consistent, harmonized and careful approach across EU member states to the use of common or mutualised funds to absorb losses, subject to the Least Cost Test, supporting market discipline and avoiding competitive distortions. In addition, deposit insurance is primarily to protect covered depositors, not to absorb losses that should otherwise be borne by the shareholders and other creditors of a failing bank. Being consistent in the tools and application of the framework at EU level in order to ensure that all banks regardless of their size or country of origin can fail in an orderly manner, have a plan in place to provide for this and have the resources to support it. Supporting strong cross-border cooperation and minimise fragmentation both within the EU and with third countries. As the Council continues to work on its general approach and in anticipation of potential co-legislators negotiations at some later date, AFME would stress the importance of moving ahead with amending the EU’s Recovery and Resolution framework in a timely fashion. This would benefit the deeper integration of the EU banking market and by extension the capital market union. – Ends –

The Association for Financial Markets in Europe (AFME) welcomes the conclusions of the Special Meeting of the European Council of 17-18 April in which EU leaders recognise the need for a “new European competitiveness deal”. The European Council’s call to deepen the Single Market and advance the Capital Markets Union as part of this new deal is, in AFME’s view, key to securing a globally competitive EU economy as well as the EU’s long-term prosperity. More specifically, its support for relaunching securitisation, developing equity financing and harmonising insolvency laws forms a strong and necessary basis for growing the European capital market. Commenting on the conclusions reached, AFME’s CEO, Adam Farkas, said, “Deep, liquid and integrated capital markets are an essential component for supporting the EU’s competitiveness. There is increasing urgency to transform the EU’s existing capital markets into a globally competitive, scaled-up and single capital market. Without this, the region’s future growth and competitiveness are at stake. “Member States all stand to gain from the scale that a truly integrated EU capital market can offer. Enrico Letta’s report discussed with leaders at this week's Summit highlights clearly these benefits. They include the ability to grow EU companies within the Single Market rather than see them develop outside the EU once they reach a certain size, and to channel the resources necessary to financing strategic priorities, including the twin transition of our economy by leveraging both European private savings as well as capital flows from abroad. We welcome Mr Letta’s focus on highlighting the benefits of a renewed single market project and how increased financial integration is necessary to support the EU’s strategic goals. We look forward to considering his roadmap to build on the existing CMU project to form a Savings and Investments Union in further detail and strongly encourage Member States to take inspiration from his ambitious suggestions when forming their strategic agenda over the coming months”. – Ends –

The Association for Financial Markets in Europe (“AFME”) and UK Finance welcomed the opportunity to respond to the consultation by HM Treasury (“HMT”) on the Private Intermittent Securities and Capital Exchange System (“PISCES”). AFME and UK Finance are supportive of the efforts by HM Treasury to strengthen and deepen capital markets in the UK and to ensure that they continue to meet the evolving needs of all market participants. Private markets play an important role in the wider ecosystem and the PISCES proposal is an important further addition to the market framework. Given the innovative nature of the PISCES model and its novel place within the existing ecosystem, AFME and UK Finance believe that it would be helpful for the overall positioning of PISCES to be clearly expressed and agreed before further granular rules are proposed. Both Associations believe this would greatly aid the process for arriving at a PISCES framework that is both attractive and proportionate. Our members consider that: the financial markets infrastructure “sandbox” environment is appropriate for initially testing PISCES and we also agree with HMT’s proposal not to allow general retail investors access as purchasers on PISCES’ launch; it will be critical to offer companies and their shareholders flexibility on PISCES in respect of auction structure, pricing parameters, settlement procedures, disclosure, confidentiality of disclosures and intermediation; and it would be helpful to establish parameters for the form and content of the platform’s disclosure requirements so that there is broad agreement at the outset (when practice and customs are forming). Gary Simmons, Managing Director, High Yield and Equity Capital Markets at AFME, said: “We are grateful for the opportunity to share our views and recommendations on PISCES and welcome the proposal to establish a platform that is intended to provide liquidity for private capital markets. We have seen this market grow substantially in recent years and we welcome the recognition of its growing role in the capital markets ecosystem and desire to support the needs of private companies.” Julie Shacklady, Director, Primary Markets and Corporate Finance at UK Finance, said: “We welcome the innovative and collaborative approach that the government is taking in making the UK’s capital markets more attractive. Private capital markets are a vital component of the ecosystem, and we support any innovation which gives privately held companies greater access to investment and helps them transition towards the public markets. HM Treasury’s proposals for PISCES are an ambitious blueprint in this regard and we look forward to working together to ensure PISCES supports companies and investors alike.” AFME and UK Finance look forward to engaging with HM Treasury as this project evolves. – Ends –

“The European T+1 Industry Task Force welcomes the recent publication of a report by the Chair of the UK Accelerated Settlement Task Force, and in particular the statement that the “UK and other European jurisdictions should continue to explore opportunities for close collaboration…to see if they can align their moves to T+1.” The members of the European T+1 Industry Task Force emphasise the need for a coordinated approach between the EU/EEA, Switzerland and the UK. “Our shared ambition is for a low-cost, efficient, safe, resilient and integrated post-trade environment which supports globally competitive European securities markets, with high levels of automation and standardisation. We anticipate that alignment of dates will reduce the complexity of implementation projects for firms active across multiple jurisdictions, and minimise scoping issues related to instruments listed, traded and settled across geographical Europe. “The Task Force intends to conduct further analysis of how Europe might transition to T+1, including development of a roadmap for adoption of T+1 in EU securities markets and a potential timeline that would allow enough time for firms to assess the changes they need to undertake, for the industry to conduct comprehensive testing, and for authorities to make the necessary regulatory changes. This analysis will also incorporate lessons learned from the North American migration to T+1 in May 2024. We intend that, once completed, this analysis will be shared publicly.” “Given the strong support for coordination across jurisdictions, the European T+1 Task Force, and its technical sub-groups, believe there is significant opportunity to work collaboratively with the proposed UK Technical Group and looks forward to doing so.” About the European T+1 Taskforce: The Task Force was established in 2023, to bring together a diverse group of industry stakeholders who would be impacted by a potential move to a default T+1 securities settlement cycle. The Task Force contains representation from industry associations representing all types of market participant, including buy-side, sell-side and market infrastructures. To date, the Task Force has conducted analysis on the potential impacts and challenges for European players from the North American migration to T+1 taking place in May 2024 and some initial factfinding across different subgroups about impacts of a potential EU move to T+1 in anticipation of ESMA’s work. The Task Force also submitted a joint statement in response to the ESMA Call for Evidence on Shortening the Settlement Cycle in December 2023. The Task Force is open to participation from any industry association representing securities market participants who would be impacted by T+1. Interested parties are invited to contact [email protected] -ENDS-

The Association for Financial Markets in Europe (AFME) welcomes the recent report of the Chair of the UK Accelerated Settlement Taskforce and its conclusion that the UK should adopt a T+1 settlement cycle within a reasonable timeframe. AFME particularly welcomes the recommendations that the UK, EU and other European jurisdictions should continue to explore opportunities for close collaboration in order to ensure alignment on T+1 settlement cycles and to establish a Technical Group comprising operational and market experts. Commenting on the report AFME’s CEO, Adam Farkas, said, “AFME agrees with, and supports, the conclusion of the report that UK securities markets should adopt a T+1 settlement cycle, within a reasonable timeframe. The report recommends a coordinated approach across the UK, EU and other European jurisdictions. AFME fully endorses this conclusion, and we further note that the report does not identify any material advantage for UK capital markets to move to T+1 out of step with regional partners. We therefore call on authorities to adopt a collaborative approach in order to reach a pan-European consensus on timing. We highlight the need for further detailed technical analysis across Europe in order to determine the appropriate implementation date, and the nature and timing of any broader market changes that are necessary to facilitate T+1. This analysis should incorporate lessons learned from the US move to T+1 in May 2024. We therefore welcome the establishment of the Technical Group and we will continue to share our, and our members’ wealth of expertise during the next phase of work.” – Ends –