Following the speech made by the UK Prime Minister today in Florence, Simon Lewis, Chief Executive at the Association for Financial Markets in Europe (AFME) said:“We welcome the UK Government’s call today for a ‘time-limited implementation period’ after March 2019. We believe that transitional arrangements will be vital to give businesses, banks and investors time to adjust in order to avoid damaging cliff edge effects. They are also necessary to support the objectives of an orderly withdrawal, ensuring financial stability and the prosperity of both the EU27 and the UK.“We urge the negotiators to reach agreement as soon as possible on the items under discussion in phase one of the negotiations in order to have clarity on transitional arrangements.”– Ends –

AFME has today published a new guide to MiFID II/MiFIR Post-Trade Reporting Requirements: Understanding Bank and Investor Obligations.With new post-trade reporting requirements due to come into force in January 2018 under the revised Markets in Financial Instruments Directive (MiFID II), this educational document has been drafted for use primarily by banks and investors to better clarify which party has the reporting obligation. It also highlights the key challenges and practical implementation options for investment firms to consider as they progress with plans to be MiFID II compliant.As MIFID II expands the scope of the post-trade reporting obligation beyond the existing MIFID requirements, this poses a number of new complexities around the who, what, when and where of reporting. Following a recent rapid increase in technical inquires originating from various market participants, AFME put together a Post-Trade Transparency (PTT) Working Group of cross asset-class experts to draft this document which aims to clarify such issues. Simon Lewis, Chief Executive at the Association for Financial Markets in Europe said: “The MiFID/MiFIR post-trade reporting regime is complex for market practitioners. With the MiFID II deadline fast approaching in January 2018, the implementation of post-trade transparency rules will require a near real-time public reporting of detailed information for the majority of trades across a range of asset classes. We hope this document will provide helpful clarity and raise bank and investor awareness of the forthcoming requirements.” Harps Sidhu, Head of Capital Markets Consulting, KPMG UK adds: “MiFID II is one of – if not the – single biggest and most significant piece of regulation hitting investment firms since 2008. It will reshape the face of European capital markets and will have a major impact on firms from both a commercial and operational perspective. Despite, its size, scope and technicality, there is no phase-in period so firms have to be ready for immediate implementation on 3 January 2018. Today’s guide to MiFIR Post-Trade Reporting will be invaluable in helping firms achieve that.” Matt Coupe, Director Market Structure EME at Barclays said:“Post-trade transparency reporting will affect all EU investment firms and the industry needs to be thinking through the details of this requirement ahead of MiFID II implementation in January 2018. Trade reporting is a complicated subject so this document was designed to look at the different scenarios and clearly outline how they work. We hope this report offers the industry clarity on reporting obligations as firms progress plans to ensure they are compliant with MiFID II.” The document aims to provide a structured approach to meeting the post-trade transparency obligations defined under Article 6, 10, 20, and 21 of MiFIR. Primarily, the document covers: Firms impacted by MIFID II’s post-trade transparency requirements The data that is to be reported When and where the data is to be reported Reporting scenarios case studies Challenges that the impacted participants will need to consider in order to implement the necessary reporting solutions Explanation of terms such as Approved Publication Arrangements (APAs), Systematic Internaliser (SI) and post-trade transparency deferrals

Following the publication today by the European Commission of its proposal for a Directive on the review of the European Supervisory Authorities, Simon Lewis, Chief Executive at the Association for Financial Markets in Europe (AFME) said:“The European Supervisory Authorities (ESAs) play an important role in the European regulatory landscape. We welcome the move towards more integrated supervision to foster CMU and financial integration. The reforms proposed today by the Commission will ensure that the ESAs continue to function well and pursue a common EU approach in a changing political and market environment.“AFME is supportive of the strengthening of some of the existing powers of the ESAs to ensure supervisory convergence. We also welcome the Commission’s aim to establish more effective governance of the ESAs, through the creation of independent Executive Boards, in order to empower their decision-making in favour of broader EU interests. We agree that the ESAs need appropriate funding in order to allow them to be adequately equipped to deliver on their ambitious agenda. The idea of ESMA receiving transaction data directly from market participants is to be supported to the extent it does not lead to additional reporting burden or duplication.” – Ends –

The Association for Financial Markets in Europe (AFME) announces that Jacqueline Mills has been appointed as Head of AFME’s Frankfurt Office which was opened earlier this year. Jacqueline has been a senior member of AFME’s Prudential team since 2014, most recently leading AFME’s work on the European Commission’s proposals for a new Capital Requirements Directive and Regulation (CRD5 and CRR2). She is also responsible for AFME’s Supervisory Committee which focuses on European Central Bank (ECB) supervision and supervisory convergence in the EU. Simon Lewis, Chief Executive of AFME said: “We are delighted to appoint Jacqueline Mills to this important role in Frankfurt. She combines a deep knowledge of prudential and supervisory matters with considerable experience working for and with other European trade associations. “Frankfurt is an important financial centre and given AFME’s mission to act as a bridge between market participants and policymakers across Europe, Jacqueline’s appointment is a significant step forward for this project.” Jacqueline will take up her post from 1 October and will be permanently based in Frankfurt from 1 January 2018. She will be responsible for deepening key relationships with Frankfurt based supervisors and policymakers. In particular, these include the ECB, the ECB’s Single Supervisory Mechanism, and the European Systemic Risk Board. Over time, AFME anticipates that this will be expanded to cover other regulators and institutions and financial market participants in Germany. Before joining AFME, Jacqueline spent 10 years at Leaseurope, as Director of Asset Finance and Research Division, where she led policy work on prudential regulation and international accounting standards and was responsible for building out a research programme and promoting the industry at European level. She has also worked for Deloitte and Eurofinas in Brussels and at the Université Libre de Bruxelles. – Ends –

UK Finance and AFME have today published a joint paper “Impact of Brexit on cross-border financialservices contracts”. The paper examines the UK and EU market place for cross-border provision offinancial services and the potential impact on the existing stock of cross-border contracts. It identifies key issues around contractual uncertainty resulting from the UK’s exit from the EU in March2019 and suggests potential ways of addressing these. This includes the need for an agreement toenable existing contracts to continue and run to maturity. Commenting on the paper, UK Finance CEO Stephen Jones said: “Contractual uncertainty of crossbordercontracts post-Brexit needs to be addressed promptly by all parties to avoid damaging impactsfor customers on both sides of the Channel. This issue is wide-ranging and not just limited to banking,affecting cross-border products and services across payments, insurance and investment managementservices also. Early action is essential to provide clarity that these contracts will continue post-Brexit.” Simon Lewis, Chief Executive of AFME said: “It is estimated that EUR1.3 trillion of UK-based bankassets are related to the cross-border provision of financial products and services – many of whichsupport EU exporting businesses that are key drivers of growth. EU and UK businesses are increasinglyconcerned about the potential impact of Brexit on the continuity of their existing contracts. Early actionto clarify that these contracts will continue following Brexit is therefore critical. As part of AFME’s factbasedpan-European approach, we have come together with UK Finance to highlight the importance ofthis issue.” The joint UK Finance and AFME paper “Impact of Brexit on cross-border financial services contracts”identifies the following critical issues: The regulatory framework and passports that have enabled EU-based customers to access a diverse suite of cross-border financial products and services from UK based banks (and vice versa) will cease to apply after UK exit. These services include lending and capital markets, risk management and foreign currency products and services and span the entirety of the financial services sector, including banking, payments, insurance and investment management. Its estimated EUR1.3 trillion of UK-based bank assets are related to the cross-border provision of financial products and services to a variety of customers from governments to businesses to individuals; There is a shared interest in the UK and EU to find a solution – without this each contract will need to be individually assessed to determine if elements to be performed constitute a regulated activity no longer authorised under the EU passporting regime and whether the national laws of the Member State where the customer is located nonetheless permit the activity, creating complexity and uncertainty; Contracts between EU27 businesses and UK-based banks may need to be transferred, restructured, or potentially terminated. In addition businesses may need to look for alternative financing providers to ensure they can meet their commercial objectives. Potential implications of such restructuring include: significant demands on management time for the businesses, one off reorganisation costs, crystallisation of tax liabilities (where repayment triggers a capital gain), ongoing expenses where it is not possible to restructure a contract on a like-for-like basis, increased credit risk and impact of losing the benefit of netting positions. Alongside a transitional period, early action is required to provide the necessary clarity that these contracts will continue following the exit of the UK and the EU: Both sides should confirm at the earliest opportunity the principles established in the EU negotiating directives that the right to trade goods on the market at the point of exit must be preserved and extended to services and to avoid contractual uncertainty. Transitional arrangements should be structured in a way to protect existing contracts for the duration of the transitional arrangements. EU Member States should consider legislation to ensure contractual continuity for a specified number of years where appropriate / required. The UK should use the European Union (Withdrawal) Bill to provide the same. There is precedent for dealing with this sort of situation. For example, an EU-wide solution was adopted to address the uncertainty around the introduction of the euro currency and around the new regulations on OTC derivatives, central counterparties and trade repositories. Click here to read the paper

AFME has today published a new paper, “The Need for Early Clarity on a Brexit transition”. The paper is intended to explain in more detail the importance and necessity of transitional arrangements and summarises AFME’s views on what such arrangements should look like. Simon Lewis, Chief Executive of AFME, said: “Banks are conducting extensive planning and putting in place arrangements to minimise disruption to their businesses and clients. However, additional time is required to adapt to the post-Brexit framework and to minimise disruption for end users of financial services, including ensuring the continuity of existing contracts.” Under a transition period, AFME believes that: existing market arrangements should be maintained to provide certainty and stability to businesses and market participants as they prepare to adjust their operations to the final permanent relationship. Existing legislation, regulation, permissions and authorisations should continue to be effective during the transitional period; the EU27 and UK Government should commit to a period of transition in a legally binding agreement as soon as possible. Pending the conclusion of such agreement, they should at least commit by the end of 2017 on the principle of a transitional period in a formal political joint EU27/UK statement. However, any such political statement will need legal and regulatory underpinning before it can be relied upon. Transitional arrangements should comprise: a bridging period to avoid short-term disruption until the new relationship between the UK and the EU27 is ratified, should that prove unachievable within the two-year Article 50 period. This period should avoid damaging ‘cliff edge’ effects; and an adaptation period, following the bridging period, which would enable phased adjustment to the new trade relationship. In addition to the transitional period, the following steps should also be taken to minimise disruption and support transition: Cross-border trades and contracts which are executed prior to Brexit, but which continue after the point of Brexit, should be grandfathered; Regulators should adopt a flexible and pragmatic approach to the new structures and operating models that firms propose, including accelerating the approvals process and leveraging prior regulator-approved risk models (possibly followed by a longer-term reassessment). Regulatory flexibility during this period of change could be provided by the EU27 and UK authorities making use of No Action relief when necessary and available; Regulators, central banks and national governments should continue to support financial market stability. This may require particular attention during the uncertain period around Brexit, and in particular during the transition, and may involve more regular market communications and targeted support in case of market need (e.g. access to liquidity schemes); and Public authorities in both the EU27 and the UK should identify whether the individual measures needed to implement a transitional period in their own jurisdiction require bilateral agreement between the EU27 and the UK, or could be implemented on a unilateral basis. Measures that can be taken on a unilateral basis are not dependent on the outcome of any negotiation, and thus could be taken earlier, thereby providing market participants with additional information and reassurance at an earlier point in time. The full AFME paper is available here

Following the communication from the European Commission today on the future of Post Trade, Werner Frey, Manging Director of Post Trade at the Association for Financial Markets in Europe (AFME) said: “We warmly welcome the publication of the new European Post Trade Forum (EPTF) Report - replacing the Giovannini Barriers - which identifies barriers which have not yet been dismantled, as well as new barriers and bottlenecks which need addressing in order to promote more efficient and resilient market infrastructures in the EU.AFME, as a member of the EPTF, has been a key contributor to the drafting of the new report, which was conceived with a view to supporting the work of the European Commission in reviewing the developments in post-trading, including collateral management services.Europe needs a clear vision for its post trading landscape and a coherent strategy for delivering this goal. We believe that the Capital Markets Union project will contribute to the dismantling of the remaining barriers to achieve a safe and efficient European post trade landscape.”In the view of the EPTF members, the following barriers should be given the highest priority for resolution: EPTF Barrier 12: Inefficient withholding tax collection procedures – a barrier to efficient cross-border investments EPTF Barriers 8, 9, 10, 11: Legal inconsistencies and uncertainties – a barrier to a successful capital market union EPTF Barrier 1: Fragmented corporate actions and general meeting processes - a risk that successful barrier dismantling work is jeopardised by renewed fragmentation EPTF Barrier 4: Inconsistent application of asset segregation rules – providing for safety and efficiency through harmonisation EPTF Barrier 5: Lack of harmonisation in registration and investor identification rules and processes – an obstacle to cross-border securities investment and issuance EPTF Barrier 6: Complexity of post-trade reporting structure – an obstacle to making the EU an attractive investment destination The final EPTF report can be downloaded from the European Commission website here

ICMA and AFME today release “European infrastructure finance: a stock-take”. This is a review of the state of infrastructure financing, investment and related initiatives in Europe, and an assessment of how to further advance and encourage private sector finance for infrastructure projects. The review was undertaken as a follow up to the ‘AFME-ICMA Guide to Infrastructure Financing’ published by the two associations in June 2015.Studies show that a substantial increase on current investment levels in infrastructure is required to support future expected economic growth. Since the financial crisis, institutional investors have substantially increased their investment in infrastructure, but this welcome trend requires further encouragement, which may be achieved via a mix of financial instruments, innovative financing solutions and familiarity with the different risk and return profiles of individual projects. The review highlights some of the other measures which could help to generate a positive environment to boost private sector infrastructure investment, including: understanding, structuring and allocating risk, including country-specific risk the importance of coherent and trusted legal frameworks to ensure long-term regulatory and political stability, and the equal treatment of foreign, local and institutional investors developing expertise and standardisation of best practice more and better-quality disclosure of information on infrastructure projects and on ongoing infrastructure debt performance a review of regulation to ensure that investing in infrastructure does not become punitive as against other asset classes Commenting on the review, Martin Scheck, Chief Executive of ICMA, said: “The publication of this detailed picture of the European market for infrastructure financing brings us up-to-date with progress made both since the publication of the Guide two years ago and the advent of other government and non-governmental initiatives. ICMA remains committed to exploring with its members ways in which further progress can be made in creating optimal conditions for the private sector to finance infrastructure development”. Simon Lewis, Chief Executive of AFME, said: “Europe needs to expand private investment in long-term infrastructure projects as a means of unlocking economic growth. AFME remains strongly supportive of the European Commission’s European Fund for Strategic Investments (EFSI) and its planned extension, which is currently under discussion. Our latest ‘stock-take’ publication is a follow-up to the 2015 ‘Guide to Infrastructure Financing’ and is one of a number of industry actions in support of the European growth agenda with a view to actively supporting and promoting a better understanding of financial markets.” Click here to access the guide.

Following the agreement by the European Council today on an action plan to address the problem of non-performing loans in the banking sector, Simon Lewis, Chief Executive at the Association for Financial Markets in Europe said: “AFME supports the establishment of a strategy to address the issue of high NPL levels, where they occur, to avoid risks of cross-border spill overs in Europe. We believe that fostering deeper secondary markets for NPLs can contribute to better management of NPL flow. We therefore support proposals under the Capital Markets Union towards this objective. “A strategy to deal with high levels of NPLs needs to be appropriately targeted and should distinguish between legacy issues and the flow of future NPLs. The need for additional supervisory measures to control new NPLs should be very carefully assessed given supervisors’ existing powers. We caution against pursuing additional measures in this area which could be duplicative and costly for firms that are currently successfully managing NPLs.” – Ends –

AFME, The Boston Consulting Group (BCG) and Clifford Chance have today published a new report, “Bridging to Brexit: Insights from European SMEs, Corporates and Investors” examining the impact of Brexit on SMEs, corporates and investors, in particular, on their use of wholesale banking and capital markets services.To assess the potential effects, BCG interviewed end-users of wholesale banking services, including 62 CEOs and treasurers of SMEs, large corporates and investors, along with 10 industry associations representing a wide range of companies and sectors in multiple geographies, including a significant portion of SMEs, EU and UK equity market capitalisation, and assets under management. To illustrate the potential impact on businesses, the report also includes real life case studies and quotes from the interviews conducted.Simon Lewis, Chief Executive at AFME, said: “The clear message from our report is that our interviewees, especially small firms with customers or suppliers cross-border, believe that a hard Brexit could impact their business and growth. Large corporates, in particular, are concerned about loss of efficiency and fragmentation in conducting cross-border business. Both SMEs and large corporates also face potential disruption in the provision of wholesale financial services which in turn will lead to a higher cost of capital for businesses. That is why above all else business would like the status quo preserved.”Philippe Morel, Senior Partner at BCG, said: “This is a unique study providing the end-user view for the first time. We interviewed businesses across the EU-27 and UK – across all sizes, sectors and segments, providing a strong representation across SMEs, large corporates and large investors. Their message was clear: they hope that the impact on their procurement of financial services is minimal. At the same time, we looked behind the front office curtain – what do banks have to do to maintain the same levels of service post-Brexit as they currently provide? We found that in aggregate the cost, in the event passporting is lost, would be significant, both in terms of transferring bank operations and capital to new entities, as well as re-structuring costs, and ongoing higher capital needs. Specifics will vary depending on individual business models.”The overarching findings are that: European businesses are not yet prepared for a change in the wholesale banking landscape. While measures can be taken to continue offering the same services through different structures, this will result in greater fragmentation of banks’ use of capital, and a likelihood of reduced aggregate capacity for financing and other wholesale banking services. Other key findings: Businesses are primarily worried about the direct impacts of a hard Brexit, such as trade barriers, movement of labour, increased compliance and customs costs. Brexit-driven concerns relating to wholesale banking services are sector specific. Both SMEs and large corporates are worried about access to credit and fear risk management will become more expensive. Investors are concerned that Brexit will induce a complex exercise of re-documenting existing derivatives and other trading relationships. BCG’s “supply side” analysis found that Brexit could lead to reduced capacity and more restricted access to wholesale banking services than our interviewees expect, with SMEs potentially hardest hit. The cost and impact of making adjustments, such as forming new banking relationships, could also be significant for SMEs. Approximately 55% of our SME participants said they had made no plans so far for Brexit, compared with only 27% who have carried out some internal planning and around 18% who have executed plans. Of those who have started planning, interviewees are adapting their businesses and relationships to operate on both sides of the Channel, which increases their costs, risk level and cost of capital. Though they recognize potential challenges, businesses generally expect banks to handle any post-Brexit wholesale banking-related difficulties and to support them through the Brexit journey. Continuity of service could be maintained if banks currently operating with UK banking licences create subsidiaries in EU27 jurisdictions. The process to do so, however, is likely to be costly due to additional capital and operational change required. The cost of restructuring could be as much as €15 billion, with the cost for each individual bank depending on its current geographical footprint and client focus. Amortised over 3 to 5 years, this could reduce return on equity for affected banks by 0.5 to 0.8 percentage points, a material impact. BCG’s “supply side” analysis suggests that businesses may underestimate the banking-related effects of a hard Brexit. In aggregate, approximately €1,280 billion of bank assets (loans, securities and derivatives) may need to be re-booked from UK to EU27 following a hard Brexit, unless alternative arrangements can be agreed. These assets are supported by €70 billion or approximately 9% of the (Tier 1) eqity capital of the banks affected. Securities and derivatives trading has largest potential for disruption - trades with EU27 clients now booked in the UK are estimated to amount to €380 billion in risk-weighted assets (or €1,100 billion in trading assets) representing approximately 68% of UK-booked business to EU28 clients. This business is supported by €57 billion of bank equity capital which may need to be re-booked to the EU27 following Brexit. Bank lending may also be affected, though to a lesser extent. The total loan exposure of UK-incorporated banks to EU27 SME and large corporate clients is estimated to be €180 billion (4% of total loans outstanding to EU27 large corporates & SMEs). This lending is supported by about €13 billion of equity bank capital currently domiciled in the UK. Any movement of EUR-clearing from UK to EU27 would impact banks & clients - approximately €30-40 billion of additional initial margin would need to be posted by banks, an increase of 40-50%, the cost of which will need to be allocated between banks and clients on an individual basis. BCG estimates that the long-term inefficiencies of Brexit-related fragmentation could require banks to hold as much as €20 billion of additional equity capital. Chris Bates, Partner at Clifford Chance, said: “Much has been said about the challenges of a hard Brexit for banks, but that only tells half the story. The truth is that from SMEs to international businesses, companies that rely on those services are equally at risk. This research shines a light on some of the challenges that a hard Brexit would present business users of banking services, and how it would affect the real economy in both the UKand EU27. Measures to smooth the transition are critical. The costs of the cliff edge have never been so clear." Filip Geerts, Director General at CECIMO, a European machine tool industry association interviewed for the report, said: “Our SME machine tool builders are focused on their businesses and do not want to lose time or resources on any possible political or institutional driven Brexit related obstacles. We would like to see uninterrupted lending and risk management services.” ConclusionsThe report concludes with some key recommendations from interviewees, including: grandfathering of existing contracts and a degree of patience with respect to re-documentation of contractual relationships, to minimize the legal and operational disruption to banks and their clients; a transition period to give users and providers time to adjust, as well as a period in which risk-transfer mechanisms are permitted; gaps to be filled: UK policy makers to consider replacing lost capacity from the European Investment Bank (EIB) and European Investment Fund (EIF) from which UK end users would suffer; And most critically: status quo preserved: approximately 80% of our interview participants – EU27 and UK – hope Brexit negotiations will result in similar levels of access to and costs of wholesale banking services as they have today. Interviewees feel strongly that the political negotiations should keep in mind the impact of Brexit on real economy end users. – Ends – Click here to download the report Press release also available in: French German Italian Spanish