This press release is also available in French, German, Italian and Spanish The Association for Financial Markets in Europe (AFME) and PwC have today published a new ex-post study on the impact of regulation on banks’ capital markets activities. While there have been many forward-looking studies examining how banks may respond to regulatory reforms, this latest study is the first that examines how banks have actually responded to regulations 10 years on from the global financial crisis.At a point where global supervisors have finalised the post-crisis reform programme, AFME commissioned PwC to assess the role played by regulation in motivating changes to banks’ capital markets activities. Simon Lewis, Chief Executive at AFME said: “While the benefits from the post-crisis regulatory framework are clear, now is the right moment to examine how this framework has influenced banks’ capital markets activities. Our study finds that since the crisis, there has been a significant decline in banks’ global capital markets assets with regulation being by far the largest single driver of these changes. This clear link between regulation and its impact on banks’ capital markets activities strongly argues for EU and global authorities to commission further studies of the potential effects of these rules on the provision of primary and secondary market services to end users, such as corporates and investors, before undertaking any further major regulatory changes.” Nick Forrest, Director at PwC, said: “Our study shows that since the global financial crisis, regulation has had a key impact on the shrinkage of banks' balance sheets - with a bigger effect than other economic and market trends. Banking regulations have contributed to a particularly substantial reduction in banks' balance sheet capacity to support the issuance, marketing and secondary trading of corporate debt, equity and related hedging products. This can ultimately lead to reduced access and higher cost of borrowing for corporate borrowers." The study draws upon data across a selection of 13 global banks - which in aggregate represent 70% of global capital markets activities - covering three years of data: 2005, 2010 and 2016 as the latest full year of data available. Among the key findings from the study are:• The aggregate annual regulatory cost that applies to capital markets activities across the 13 banks in our sample is estimated to be approximately US$37bn, representing 39% of total capital markets expenses in 2016. • Capital and leverage requirements are the most substantial drivers of regulatory cost and account for almost 90% of the total regulatory impacts. • Regulation drove a 14 percentage point reduction in (pre-tax) capital markets return on equity (ROE) from 2010 to 2016 (from 17% to 3%) before banks’ mitigating actions via deleveraging, cost reductions or repricing. Following such actions, overall ROE (excluding one-off charges) recovered to 11% by 2016. • Rates and credit activities have been most impacted by regulation in ROE terms. • Higher regulatory costs and low returns have been significant drivers of assets deleveraging in banks’ capital markets activities. • Regulation alone accounted for about two thirds of the net 39% decline in capital markets assets across the sample of banks between 2010 and 2016, with pronounced falls in rates, credit, commodities and equities assets. • Macroeconomic trends and non-regulatory factors also explain some of the movement in assets. • Broad trends of deleveraging across regions suggests these are global in nature, and not limited to individual firms or regions. The PWC/AFME study captures information up to 2016. It therefore does not incorporate data on the impacts from the recent introduction of MiFID II/MiFIR or banks’ responses to the forthcoming implementation of NSFR and the remaining Basel III capital reforms. Taken together with banks’ 2017 capital markets results, this strongly suggests that the trends seen in the study are likely to continue. AFME recommends that European and global authorities undertake further ex-post cumulative impact studies. These should specifically examine how regulation impacts the economics, for providers of primary and secondary market capital markets products and their incentives and capacity to continue offering them to end-users, such as corporates and investor users of financial services. Particular attention should be given to the provision of market making services in impacted asset classes. Click here to download the full report. - ENDS -

Following the update from the Bank of England today on its approach to how banks and other financial services firms should prepare for Brexit, Simon Lewis, Chief Executive of AFME, said:“We welcome this further guidance from the Bank of England, confirming that member firms can plan on the basis of the transitional period agreed last week.“We also welcome the publication of the final policy on the authorisation of branches of international banks, providing further clarity for banks. It will now be important for the UK and EU regulators to put in place cooperation arrangements to support this.“While this additional regulatory clarity is very helpful, the approach of the regulators in the EU27 will also be key in achieving the objective of an orderly withdrawal. We hope that over the coming weeks, much-needed further clarity can be provided on issues such as contractual continuity, access to financial markets infrastructure and data flows.”– ENDS –

Following the conclusion of the EU Summit today, Simon Lewis, Chief Executive of AFME, said:“We are encouraged by the steady progress being made towards Phase 2 of the negotiations and the political agreement on a transition period marks an important stage in the Brexit process.“It will now be important to have clarity from regulators as to their expectations in light of the agreed transition period. While a transition period will help mitigate a number of potential cliff edge risks, the draft Withdrawal Agreement does not currently address issues such as contractual continuity, access to financial markets infrastructure or data flows.”– ENDS –

Welcoming the initial agreement on a transition period, announced today, Simon Lewis, Chief Executive of AFME, said:“The initial agreement on a transition period announced today is a major step forward and we look forward to seeing more details at the EU summit later this week. While this agreement is a big move in the right direction, it will be important to see that there is real political and regulatory commitment from both sides to a transition period.”– ENDS –

Following the publication of the European Commission’s legislative initiatives on NPLs today, Simon Lewis, Chief Executive at the Association for Financial Markets in Europe (AFME) said: “The Commission’s proposals for the development of a secondary market for NPLs is an important initiative which should enable banks to accelerate the reduction of such loans on their balance sheets. High levels of NPLs have long tied up valuable bank financing which might otherwise have been deployed in supporting economic growth.“Plans to enable creditors to more rapidly recover their collateral may also contribute to a freeing up of defaulted loans, but it will be important to ensure full consistency with existing insolvency regimes and other legal requirements. The appropriate level of provisioning of NPLs should be determined on a bank-by-bank basis in agreement with supervisors rather through the enforced application of uniformly applied Pillar 1 prudential backstops.” On the specific legislative actions:Accelerated Extrajudicial Collateral EnforcementAFME believes that this framework would be helpful to better protect creditors from borrower defaults as it will provide more certainty on loan recovery proceedings and improve times associated with such recoveries. During the discussion of the legislative proposal, lawmakers should ensure consistency with other legal frameworks, including, most importantly, the Commission’s proposed Directive on EU insolvency, as well as existing insolvency regimes and any legal guarantees or other credit support that might already be in place.NPL Secondary MarketsAccess to third-party loan servicers is crucial to the development and growth of secondary markets for NPLS. Measures aimed at facilitating the provision of cross-border credit servicing activities are a step in the right direction towards a true EU market for NPLs.AFME also welcomes the introduction of common standards for supervision of credit servicing activities. Consumers should be protected by guaranteeing the financial expertise of loan servicing providers, as well as the suitability of asset recovery practices.There are other major barriers, not addressed in the Commission’s legislative proposal, that lawmakers and Members States should also take into consideration to further develop the market for NPLs. For example, ways to facilitate the wider participation of investors, or efforts to reduce transfer and registration costs of loan transactions.Pillar 1 prudential backstopAFME considers that blunt, one-size-fits-all Pillar 1 prudential backstops are unnecessary. Any potential shortcomings in provisioning which have not been clearly justified should be addressed in an institution-specific manner under a Pillar 2 approach allowing security- and country-specific differences that affect expected recovery periods to be taken into account. – ENDS –

Commenting on today’s announcement from the European Commission, outlining further measures to take forward the Capital Markets Union, Simon Lewis, Chief Executive of AFME, said: “Today the Commission revealed the latest chapter in its Capital Markets Union Action Plan, which is the most ambitious one so far. Amid significant political change, the case for a CMU is more compelling than ever. For the project to succeed, the CMU must be focused on building EU capital markets in a global marketplace, ensuring that EU markets provide capital to enable businesses to grow.” Specifically, on the FinTech Action Plan, AFME: welcomes the fact that the majority of the 23 actions contained in the plan are non-legislative, which will foster an environment that nurtures innovation and help the EU to take advantage of the vast range of opportunities FinTech presents. Encouraging the growing use of FinTech will also support the development of a CMU by enabling users to enhance their business models and reduce costs, thereby benefiting customers; agrees that there needs to be a consistent regulatory approach to FinTech, however, AFME stresses that this must be global in its application. Greater coordination is also required for the development of a strong FinTech ecosystem in Europe. In this respect, the role allocated to the European Supervisory Authorities (ESAs) to ensure a more effective coordination of innovation hubs or regulatory sandboxes is very welcome; very much welcomes the Commission’s commitment to setting up various groups to tackle FinTech challenges. However, given the significant developments in DLT and artificial intelligence already taking place, we would urge the Commission to be more ambitious in its timing and to set up the Expert Group envisaged for Q2 2019 as soon as possible and to ensure the participation of as wide a variety of different stakeholders as possible. This would also ensure the EU is best equipped ahead of G20 meetings where these issues are tabled for discussion; welcomes the emphasis on cyber security as a priority. AFME and its global affiliate, the GFMA, have been active in developing a global harmonised approach to penetration testing and welcome the call for common standards and the need for a global perspective to tackle cyber threats. Specifically, on the Sustainable Finance Action Plan, AFME: welcomes the proposed creation of an EU Sustainable Taxonomy, which will provide the necessary common language to kick-start many of the Action Plan initiatives. Such a workable taxonomy will only emerge from a consensus from a wide range of market professionals. We would strongly recommend the technical expert group to include a strong governance structure with key objectives and a timeline; encourages policymakers to promote green standards and labels without constraining the development of this nascent market. We agree that green standards for green financial products should build on current best practices and recognise the valuable work undertaken under the ICMA Green Bond Principles. Any proposal should be fully aligned at international level; supports the expansion of the European Investment Advisory Hub’s remit to include sustainability considerations. The financing for infrastructure is available, but there is lack of financeable projects. We therefore recommend policymakers define an industrial strategy resulting from other EU policy objectives to identify a financeable pipeline; supports the study of the merits to include sustainability factors in prudential requirements. We agree that capital requirements should reflect underlying (credit) risks. Any review of the recalibration of capital requirements should be based on data and subject to public consultation; supports the priority action reviewing how reporting relates to climate risks, but would recommend avoiding premature standardisation. We support better voluntary disclosures, focused on materiality, to improve investment decisions through the industry-led FSB TCFD work and the Non-Financial Reporting Directive; supports further research and cost-benefit analysis on how Environmental, Social and Governance (ESG) considerations - including climate change - can be integrated into various potential initiatives, such as data gathering. –ENDS–

Click here to download a copy of the report. AFME has today published a new report, “Industry Utilities: A perspective for Capital Markets”, setting out potential future opportunities for utilities use across the capital markets, as well as the challenges preventing utilities from coming to market. The report lays out best practice principles for developing utilities for the industry, providing guidance for market participants, as well as supervisors and regulators. The report highlights that ‘utilities for capital markets’ are a way for all participants - from financial firms to supervisors - to pool resources and capabilities and to collaborate in order to achieve benefits of efficiency, scale and cost saving. James Kemp, a Managing Director at AFME, said: “At a time of rapid technological change, and as the industry continues to focus on reducing costs and increasing efficiency, the opportunity to create utilities is attracting renewed attention from capital markets participants. “Success in achieving the benefits of utilities will depend on the ability of financial institutions to work collectively to realise long-term benefits, whilst policymakers and authorities have a key role to play in driving forward common, harmonised, global standards. “Our latest report comes at a timely moment as the industry and regulators grapple with a rapidly changing technological landscape. The upcoming European Commission FinTech Action Plan will provide a further opportunity to coordinate a regulatory approach to utilities and to seek to deliver common standards that can help achieve scale and realise the benefits.” The key findings of the report are: Opportunities Utilities can provide capital markets participants with cost and efficiency savings, enhanced risk management opportunities and scalability. They offer a way for participants to collaborate on areas of mutual interest and to realise shared benefits in areas such as identification (KYC), post trade and servicing (reference data), and data aggregation (regulatory reporting). The report highlights that these functions are currently costly and complex to manage and would benefit from increased standardisation. Challenges However, utilities are complex by nature and there are barriers which can prevent both current and future utilities from coming to market, delivering the expected savings or from benefiting the industry in the long-term. AFME’s paper identifies four high-level areas where common barriers exist for utilities: Internal investment factors – where financial institutions look at a utility on an individual basis, rather than as an industry-wide offering, or where funding limitations may prevent firms from investing with a long-term horizon; External regulatory factors – where the ability to invest in utilities may be limited by pressure on capital markets participants to focus resources on meeting their regulatory requirements, where the third-party liability associated with using a service may result in a lack of appetite to adopt it or where regulators have yet to provide guidance that a utility would be acceptable; Transformation – where complex operational structures or the burden of legacy technology may restrict moving to a utility; Operation – where firms may be reluctant to ‘give up’ control to a third-party or where security risk could be increased owing to the fact that utilities can lead to a concentration of a specific industry function or service. Creating Industry Standards AFME believes that harmonised standards are critical for increasing the consistency, interoperability and participation levels of utilities. Greater collaboration across financial institutions, policymakers, regulators and third-party providers is needed to address many of the barriers to utilities. AFME’s report identifies eight principles that aim to increase the adoption and benefit of utilities. These principles cover: governance, transparency, compliance, standards, interoperability, scale, economic sustainability and market efficiency. - ENDS -

The FAQs are available inEnglish,French,German,ItalianandSpanish. AFME, together with Clifford Chance, has today published guidance to assist bank clients in understanding how their cross-border relationships may be impacted by banks’ plans to adapt to Brexit. The FAQs explain the potential significant impact on contractual relationships for financial services, providing answers to a number of “Frequently Asked Questions” which highlight potential operational and documentation impacts. As banks begin implementing their Brexit contingency plans, clients are likely to see impacts in respect of existing cross-border contracts and will be required to put in place arrangements for new business following Brexit. The FAQs address questions such as which clients may be in scope, which contracts may be affected, how they may be impacted and consequential operational impacts that need to be considered. Simon Lewis, Chief Executive of AFME said: “With the Brexit political process still ongoing, our FAQs document highlights the need for clients to take action now by reviewing documentation and operations to understand how they might be impacted, including whether operations may need to change. This is to ensure that clients have sufficient lead time to address documentation, technical and other issues for minimal business disruption. In this respect, AFME continues to call for clarity that clients will be able to rely on services under existing contracts post-Brexit.” Monica Sah, Partner at Clifford Chance, said: “Six months ago nobody was talking about repapering. Now people realise that moving contracts from one jurisdiction to another is likely to be a significant undertaking as banks adapt to Brexit. These FAQs attempt to simplify a hugely complex process and help clients understand how their day to day contractual activities will be impacted by their dealers' implementation of their own Brexit strategies. Clients need to work with their dealers to ensure a smooth transition and a continued seamless service.” The FAQs primarily focus on questions relevant to EU27 clients of UK-based banks in relation to sales and trading in wholesale markets and related credit given for settlement purposes. The FAQs also highlight questions for UK-based clients of EU27-based banks, and primary market and financial market infrastructure impacts. - ENDS -

Download the roadmap here. NEW YORK, February 1, 2018 – The International Swaps and Derivatives Association, Inc.(ISDA), the Association of Financial Markets in Europe (AFME), International Capital MarketAssociation (ICMA) and the Securities Industry and Financial Markets Association (SIFMA)and its asset management group (SIFMA AMG) have today launched a roadmap that highlightskey challenges involved in transitioning financial market contracts and practices from interbankoffered rates, or ‘IBORs’, to alternative risk-free rates (RFRs).The benchmark transition roadmap aggregates and summarizes existing information publishedby regulators and various public-/private-sector RFR working groups in order to provide a singlepoint of reference on the work conducted so far to select alternative RFRs and plan for transition. The analysis focuses on key IBORs in five currencies: euro, sterling, Swiss franc, US dollar andyen. Based on publicly available data, the roadmap estimates total outstanding notional exposureto the IBORs at over $370 trillion. Derivatives, syndicated loans, securitizations, business andretail loans, floating-rate notes (FRNs) and deposits are all significantly exposed to LIBOR andother IBORs.The roadmap is the first part of a comprehensive analysis of the issues and potential solutionsrelated to RFR transitioning for a wide spectrum of financial instruments. The Associations willshortly initiate a global survey of buy- and sell-side firms and infrastructure providers, whichwill feed into an in-depth report aimed at supporting industry interest rate benchmark transitionplanning efforts.“The task of transitioning from the IBORs to new RFRs is immense, so the industry needs tostart thinking about this now. Today’s roadmap is aimed at raising awareness of the workconducted to date, and creating a central resource for interest rate benchmark transitions acrossmarket sectors. The next step is to gather feedback from all parts of the market through ourglobal survey to identify all important issues and propose potential solutions for an orderly,efficient and harmonized transition,” said Scott O’Malia, ISDA’s Chief Executive.“The challenge of transitioning from IBORs to alternative RFRs is a truly global issue that impacts all areas of finance. For the transition to be successful, it is essential that there is coordination across jurisdictions and asset classes. AFME members and their clients are active users of wholesale cash markets products that use various types of reference rates, such as securitizations, FRNs, mortgages, corporate and certain government bonds, as well as derivatives and other products. This report provides an excellent foundation and stocktake for future crucial work on the transition to new risk-free rates,” said Simon Lewis, Chief Executive at AFME.“Benchmark reform is a global issue for financial markets. ICMA is very pleased to be part of this important international initiative to provide input into the process across market sectors. The launch of the roadmap, which defines the issues involved, is the first step towards coordinating the transition in such a way as to avoid market fragmentation or disruption,” said Martin Scheck, ICMA’s Chief Executive.“Our members are focused on the identification of challenges related to making any moves to new reference rates in a manner that protects the liquidity and resiliency of both cash and derivatives markets. This initiative will provide information and data that will help inform regulators and the market about both these challenges and begin the process of identifying potential paths forward,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO. “Global communication and coordination within our industry and with regulators is essential, and SIFMA and SIFMA AMG believe the roadmap and subsequent survey will be helpful in this way across the financial industry, to corporate end users, and to regulators. It is crucial to try to achieve some relative consistency across geographical regions, product segments and market participants to both avoid fragmentation of global markets and permit effective risk management.”The roadmap sets out a number of potential challenges that would need to be addressed when transitioning to RFRs, including market adoption of the new RFRs, valuation and risk management complexities, documentation issues, infrastructure requirements, and regulatory, tax and accounting implications. It also outlines the steps taken by the various public-/private-sector RFR working groups to resolve these challenges.Background Interbank rates such as LIBOR, EURIBOR and TIBOR (known collectively as the IBORs) are floating rates based on IBOR contributor banks’ average cost of unsecured funding in the interbank market for a given period in a given currency. Several reviews focusing on the IBORs have been published in recent years, starting with the Wheatley Review of LIBOR in the UK in September 2012. This was followed by a broader set of principles on benchmarks issued by the International Organization of Securities Commissions (IOSCO) in July 2013, and a further, more targeted report on interest rate benchmarks by the Financial Stability Board (FSB) in July 2014. The FSB’s report noted that liquidity in the transactions underpinning certain of the IBORs has decreased to the extent that these rates are no longer sustainable across all relevant tenors. The FSB therefore recommended transitioning to alternative RFRs. Working groups have been set up in several jurisdictions, including the UK (the Working Group on Sterling Risk Free Reference Rates), US (the Alternative Reference Rates Committee), Switzerland (the National Working Group on Swiss Franc Reference Rates) and Japan (the Japanese Study Group on Risk Free Reference Rates), to bring together representatives from both the public and private sectors to determine the most appropriate RFRs in the relevant currencies. European policy-makers have also announced the launch of a similar public-/private-sector working group to consider a euro risk-free rate. The selected rates are reformed SONIA for sterling, SARON for Swiss franc, SOFR for US dollar and TONA for yen. In July 2017, the chief executive of the UK’s Financial Conduct Authority (FCA), Andrew Bailey, announced that the FCA would no longer compel or persuade banks to provide submissions for LIBOR post-2021. The FCA’s announcement has prompted the industry to begin focusing on transition strategies for new and legacy contracts. In the US, the Alternative Reference Rates Committee has proposed a paced transition plan, and intends to augment and expand that plan through additional proposals this year.

Click hereto download the guidelines. AFME’s High Yield Division has today published its most comprehensive set of industry-wide Guidelines for the European High Yield Primary Bond Market. The Guidelines are intended to provide guidance for issuers and AFME members when leading or otherwise participating in offerings of non-investment grade notes, known as “high yield bonds”.The Guidelines were put together by AFME’s High Yield Division members in a wider effort to maintain and improve business practices in the European high yield market. The Guidelines provide a helpful overview of the high yield issuance process for first time or potential issuers (and other interested parties). Where appropriate, other elements of the Guidelines reflect suggested best practice for market participants and also provide forms of certain standardised documents for use in high yield offerings. Gary Simmons, Managing Director of AFME’s High Yield Division, said: “We believe that these comprehensive guidelines will be helpful to the European high yield industry, both as suggested procedures for conducting high yield transactions, and also as an explanatory guide for parties that are not necessarily familiar with the European high yield market and how it works. This is another example of AFME’s efforts to facilitate more efficient and effective capital markets across Europe."Youssef Khlat, Global Head of High-Yield Capital Markets, Crédit Agricole and Chair of the AFME High Yield Board, said: “The AFME European High Yield Guidelines are another important step in the industry’s efforts to come together and agree on proper practices and procedures. While it’s important that parties retain some flexibility to tailor high yield transactions to specific situations, I believe that the guidelines can provide a valuable basic framework for the industry.”Michael Dakin, Partner at Clifford Chance and Vice-Chairman of the AFME High Yield Board, said: “"On behalf of the AFME High Yield Division Board of Directors, I would like to thank those individuals from all across our industry who invested significant time in updating and preparing the European High Yield Market Practice Guidelines which were published today. Their efforts highlight the collaborative ethos that the Division has been so keenly focussed on fostering in our market and reflects the desire of the European High Yield market, from the sell-side to the buy-side and across other market participants, to work efficiently and effectively."Tanneguy de Carné, Global Head High Yield Capital Markets at Societe Generale CIB, and Vice-Chairman of the AFME High Yield Division Board, said: "Our European high yield bond market has grown tremendously over the past ten years, these guidelines are helpful recommendations to maintain the highest standards and to continue to welcome new participants and keep up with the evolving regulatory environment."