AFME has today submitted its response to the European Commission’s public consultation on the capital markets union mid-term review 2017 providing clear policy recommendations to pursue in the second half of the Commission’s term. Simon Lewis, Chief Executive of AFME, said: “The case for CMU remains strong and compelling to increase financing to the wider economy. The development of well-functioning cross border capital markets is crucial to support high growth companies, as well as to provide investors with reasonable returns in times of low interest rates.”“The CMU project is well underway and Vice President Dombrovskis and his team have undertaken significant efforts to establish the right conditions for developing Europe’s capital markets. But there is still much work to be done. It is important to keep up the pace in this second wave of the project to ensure the timely and successful delivery of CMU, which will remain essential well beyond the term of the current Commission.”In its response, AFME outlines three overarching objectives for the second half of the Commission’s term: address Europe’s shortage of risk capital: the Commission and co-legislators should prioritise actions that would make risk capital more widely available, particularly for Europe’s high growth businesses; maintain and promote well-functioning secondary markets: policymakers should continue to focus on preserving and enhancing market liquidity, particularly by considering the impact of market conduct regulations and CRR II rules on the functioning of wholesale markets; deliver on the actions already in train: the Commission published its CMU Action Plan in 2015 which already contains many important initiatives that should help to develop Europe’s capital markets. It is important that all actions are delivered on and Member States need to act swiftly to address the barriers identified. Based on these objectives, AFME suggests ten policy priorities: the importance of supporting alternative forms of financing in the pre-IPO phase; support SME growth markets further to provide a source of finance for growth companies; the need to focus on less developed capital markets and how CMU can help to develop them, recognising the role that regional markets can play in this context; the need to focus on sustainable finance and infrastructure as key asset classes to support long-term economic growth; the importance of progressing the regulatory review agenda to make sure that the regulatory framework supports capital markets, both those which are established and others which are less developed. Regulatory consistency and coherent calibration is fundamentally important in ensuring that wholesale markets fulfil their role in matching investors and investment opportunities globally; the need for further national pension reforms; well-functioning secondary debt markets for existing markets such as investment grade corporate bonds, and enhancements for less liquid or illiquid markets, for example ABS and NPLs; the importance of maintaining a robust secondary market infrastructure to facilitate capital raising and trading, including having appropriate best execution and reporting requirements; addressing the withholding tax barriers currently in place and consider the options for going beyond the recommendations that have already been made to Member States; the global context of CMU by arguing in favour of open capital markets which operate with a sensible equivalence framework, all supported by well-functioning ESAs. AFME remains strongly committed to CMU and looks forward to working together with legislators to make sure that the building blocks of a successful CMU are being put in place by 2019.The full response can be found here

Industry calls for more action on risk capital for Europe’s high growth firms. AFME has today published a new report examining the specific challenges associated with raising risk capital for small and mid-size high-growth companies in the European Union. The report aims to inform policymakers about the challenges facing Europe’s high growth companies in obtaining crucial early stage financing.“The Shortage of Risk Capital for Europe’s High Growth Businesses” was authored by AFME with the support of 12 other European organisations representing all the different stakeholders involved in pre-IPO finance. These include the European Investment Fund (EIF), seven other European trade associations representing business angels (BAE, EBAN), venture capital (Invest Europe), accountants (Accountancy Europe) and crowdfunding (ECN), as well as stock exchanges (FESE, Deutsche Bӧrse, LSE, Euronext, Nasdaq).Simon Lewis, Chief Executive of AFME, said: “Europe’s shortage of risk capital for high-growth businesses is a pressing issue, particularly given the enduring low growth environment. Collectively, we are pleased to present this pan-European report providing data and recommendations on improving access to equity and venture debt financing for high growth companies. The industry looks forward to working with the Commission to help further the Capital Markets Union and growth agenda and boost EU companies’ competitiveness.”Olivier Guersent, Director-General at DG FISMA, said: “The European Commission welcomes this new pan-European study on the shortage of risk capital for ambitious firms seeking to expand. This is one of the core challenges that the EU's Capital Markets Union seeks to address. The inadequate supply of risk capital has been a longstanding constraint on European firms with high growth potential. Under CMU, the Commission has tabled several initiatives to improve the functioning of these markets. However, there is no quick fix. European policy-makers need to stay focussed on this structural challenge in the years ahead. This report is very timely as the Commission prepares to refresh the CMU action plan through its mid-term review." The report identifies the main barriers preventing the creation and growth of businesses in Europe and makes the following recommendations to address them: Fragmented start-up marketEstablishing a single EU framework for start-ups with standard rules across EU Member States would enable young businesses to scale-up across borders and facilitate access to 508 million customers. This could be done through the establishment of an EU expert group to focus on the revision of the various EU legal frameworks, insolvency laws and tax incentives for investors. There is already momentum for such a transformation with the recent Commission Start-up and Scale-up Initiative, including the proposal for an Insolvency Directive; Lack of awareness of risk capital benefits among businessesImproving awareness among entrepreneurs of how to gain and retain risk capital investors would reduce business failure rates. Better business structure and governance from the start would increase the chances of raising subsequent rounds of financing from professional investors. Businesses with stronger cash positions would emerge, leading to higher chances of survival; Under-developed business angel and crowdfunder capacityUnlocking business angel and crowdfunder capacity would allow them to invest in companies across the EU. Creating a single market for business angel investors by aligning best practices and ensuringconsistent tax incentives in the EU28 could be one way to provide more risk capital to Europe’sinnovative businesses. Education, training and certification of individual investors, as well as thepromotion of the role of syndicates and networks with a European reach, would also increase thenumber of crowdfunders and business angels; Insufficient business angel exit opportunitiesIf business angels and crowdfunders are to invest more, they must have access to better exitopportunities. The development of networks and training, as well as the development of secondarymarkets for private shares at EU level would enable such access; Insufficient venture capital fundingIf Europe’s VC industry is to provide more funding, it needs to scale up. This could be achieved byproviding incentives for investing in VC funds, encouraging investment in the asset class andpromoting pension savings in the EU28 generally. Achieving a workable EU-level marketing passportfor VC fund managers (as part of the review of the EuVECA) and the launch of the pan-European fundof funds are good steps forward; Small venture debt marketDeveloping the venture debt market in Europe could provide the necessary funding for VC-backedbusinesses to reach their next milestone. Venture debt can fill the gap between two VC equity rounds. Unfavourable environment for businesses to access public marketsBuilding a favourable environment for access to capital markets would help small businesses accessthe information necessary to initiate long-term growth financing strategies. To do this, thedevelopment of SME advisory ecosystems of issuers, advisors, entrepreneurs, academics andEuropean centres of innovation is recommended; Sluggish primary equity marketThere is a need to tackle the decline in IPOs, which play a crucial role in Europe’s economy. Theproposed Prospectus Regulation is a great opportunity and further initiatives should be undertaken,such as supporting new categories of investors to invest in high-growth companies. The report outlines the various sources of EU financing available to Europe’s high-growth businesses, (including family and friends, accelerators, equity crowdfunding, business angels, venture capital, venture debt, public markets and public funding), but highlights that many of these are underused: Europe could invest more in risk capital: three million EU citizens hold non-real estate assets in excess of €1m – if even a small part of this were used for business angel investing, it would make a huge difference; European companies received €1.3m on average from venture capital compared to €6.4m in the US; Venture debt is underused: only 5% of VC-backed EU companies obtain venture debt financingcompared to 15-20% in the US and 8-10% in the The report also includes an analysis of the main providers of risk capital for small innovative companies in Europe, showing that there is room for improvement in the European risk capital landscape: Business angels invested in half the number of businesses in Europe compared to the US. Only 12 EU Member States have tax incentives for early-stage investments; VC funds in Europe invested €4.1bn compared to €26.4bn on average in the US between 2007-15; Only 44% of EU VC investments went to later stage businesses compared to almost two-thirds of allVC investments in the US; Equity crowdfunding is growing in Europe with €354m invested; Origination activity in the EU has remained subdued since the 2007 crisis: in 2005-2007 an average of€11bn was raised annually through 300 IPOs per year. Since then, the annual average has fallen to€2.8bn with 161 IPOs per year between 2008 and 2015. A majority (61%) of European listed companies have market capitalisation of less than €200mcompared to just 46% in Hong Kong and 39% in US emerging growth companies. The report is part of AFME’s broader growth initiatives and is the third in a series of publications focussing on unlocking growth and jobs in Europe. Earlier publications include Bridging the growth gap, which highlighted the gaps in equity financing for small and mid-sized companies. This was followed by Raising finance for Europe’s small and mid-sized businesses translated in six languages. – Ends – Press release also available in: French German Italian Spanish

The AFME High Yield Investor Group has today published a list of sample investor questions in connection with typical high yield transactions. The list was put together as an indicative set of questions that may be asked of banks and issuers during management presentations or conference calls for the marketing of high yield bond transactions. The questions generally relate to structure and covenant terms and are intended to help inform investors about specific aspects of a particular transaction, particularly those that might be considered “non-standard”. In addition, AFME has amended its Non Investment Grade Debt Disclosure Guidelines to recommend that investors are afforded an opportunity to discuss the capital structure and covenants in each transaction during marketing. Gary Simmons, Managing Director of the AFME High Yield Division, said: “Investors have stated that they are sometimes not afforded sufficient time or opportunity to ask questions on the structure and covenants package relating to a deal, particularly those covenants, terms and conditions considered non “traditional”. As such, AFME’s investor committee has put together a list of questions, which they hope will serve as a helpful reminder to banks and issuers of their concerns with respect to the terms and conditions of high yield bonds.” The Sample List of Investor Questions and the updated High Yield Disclosure Guidelines can be found on the AFME website. – Ends –

Following the publication of the Certification Regime, Fitness and Propriety Guidance by the Banking Standards Board today, Simon Lewis, Chief Executive at AFME, said: “AFME welcomes the Banking Standard Board's good practice guidance for banks and building societies assessing the fitness and propriety of staff subject to the Certification Regime. AFME continues to work hard with the industry to improve standards of conduct and culture in the financial sector, including efficient implementation of measures such as the Senior Managers and Certification Regime and the European Banking Authority revised Guidelines on internal governance.” – Ends –

AFME has commissioned a report from PwC, outlining the operational impacts and transformation challenges that Brexit poses to the provision of banking services in the EU.The report, ‘Planning for Brexit – Operational impacts on wholesale banking and capital markets in Europe’ aims to provide policymakers and other industry stakeholders, both in the EU27 and the UK, with a fact-based analysis of how these challenges are likely to affect the financial services industry.To inform the study, information was gathered by PwC from previous case studies and from 15 banks spanning a range of sizes, activities, origins and legal entity structures. They include EU27 headquartered, UK headquartered and non-EU headquartered banks in broadly even measure.Key findings of the report include: the Brexit transformation will be highly complex for wholesale banks and contains many interdependent activities. Firms providing a significant proportion of current industry capacity will need to execute transformation programmes which will extend beyond Article 50 timescales and in many cases up to three years after Brexit has been completed; or even longer if the post‐Brexit trading relationship between the EU and UK remains unresolved for a protracted period. in executing their transformation programmes, banks will be heavily dependent upon timely approval of licenses by their new EU regulators. This represents a critical step in the implementation of new business models and is likely to occur at a time when regulators will see a peak in requests following Article 50 activation. banks are currently proceeding with two‐year tactical plans to maintain continuity of service. However, these plans are likely to be sub‐optimal for clients and market effectiveness, and will be dependent on reaching agreement about an interim business model that is acceptable to new EU27 regulators and can be put in place before the UK leaves the EU. In order to assist the wholesale banking and capital markets industry support European corporates and continue to help growth across all of Europe, the report recommends that policymakers: clarify with each industry participant as soon as possible the structure of any interim business models that may be deemed acceptable immediately post‐Brexit. clarify as soon as possible any future permanent terms for the provision of wholesale banking and capital markets services between the UK and EU post‐Brexit. following Brexit and agreement of any new market access arrangements provide an implementation period of at least three years to allow banks to complete their adaptation, and 'grandfather' transactions that are in force at the time that the UK leaves the EU. – Ends –

Commenting on the publication of The United Kingdom’s exit from, and new partnership with, the European Union White Paper by the UK government today, Simon Lewis, Chief Executive at AFME, said: "The UK government has today published its White Paper on Brexit providing some further welcome clarity on its objectives for Brexit.“Whatever the shape of the final deal, we have consistently said that the exit process outlined in the EU Treaty, including Article 50, does not on its own provide sufficient flexibility to ensure a smooth adjustment across all sectors of the European and UK economy. Robust transitional provisions will be essential to ensure orderly adjustment to the ultimate post-Brexit arrangement. “Our new study with PwC on the operational impact of Brexit on wholesale banking describes the realities that our members are having to prepare for a hard Brexit outcome. Our findings help to validate the consensus view that transition arrangements will be necessary to minimise the impact on the provision of client services and disruption to the market.“We call on policymakers to reach early agreement on a Brexit transition arrangement which enables the capital markets to adjust smoothly and maintains their capacity to serve clients across Europe and internationally.”– Ends –

The Association for Financial Markets in Europe (AFME) has today opened a new office in Frankfurt with a view to expanding its European footprint.Simon Lewis, Chief Executive of AFME, said: “Frankfurt houses some of the most important EU institutions including the ECB, ESRB, EIOPA and the German regulator, BaFIN, as well as parts of the Bundesbank. We are looking forward to using our on-the-ground presence to deepen our relationships within these institutions and on behalf of our members. We are now present in London, Brussels and Frankfurt and are keen to extend our footprint in this measured way.”The Frankfurt office will be used by AFME staff for local meetings. AFME’s first board meeting of the year will also be held in Frankfurt.The Frankfurt office address can be found on AFME’s website.– Ends –

Commenting on the speech made by the Prime Minister on the Government’s negotiating objectives for exiting the EU, Simon Lewis, Chief Executive at AFME, said:"The Prime Minister has provided some welcome clarity on the UK Government’s objectives for Brexit and acknowledged the importance of an adjustment period to limit the disruption to Europe's financial services sector. We look forward to seeing more detailed proposals on interim agreements and on market access arrangements to support well-functioning capital markets across Europe."– Ends –

Following the vote on the Simple Transparent and Standardised (STS) Securitisation package, announced today in the European Parliament, Richard Hopkin, Head of Fixed Income at AFME, said: “As the trade association that represents all the leading industry participants in European securitisation markets - including originators, sponsors and issuers, underwriters, investors - we welcome the fact that the European Parliament and Council have now endorsed the establishment of an STS framework and that MEPs support in principle the introduction of a regime for both third country STS securitisations and for non-EU participants.” “However, we are concerned that many aspects of the proposals run counter to the objective of reviving securitisation in Europe and, if adopted as currently proposed, will discourage the use of securitisation as a funding and risk transfer technique. Unless these concerns are addressed in the trilogue discussions, this key component of the Capital Markets Union will not succeed.” European securitisation has performed very well through and since the financial crisis. Yet with issuance in Europe as low as EUR40.2bn at the end of Q3 2016, the market remains moribund – largely because of the lack of a level playing field with similar fixed income products created by punitive regulation which does not recognise this strong performance. If key provisions of the final text of the Parliament’s compromises are not significantly recalibrated then all securitisation – not just STS securitisation - will become prohibitively burdensome in Europe, the STS framework is likely to fail and securitisation as a whole – whether STS or not – will not be able to provide much-needed funding to the real economy. In particular, the following key areas should be addressed: Capital and “proxy data”: allowing European banks to use proxy data will help to reinforce a true Capital Markets Union by opening up a much wider range of potential investors across Europe and establishing a more level playing field globally; Proper recognition of private transactions: including appropriately adjusted, yet prudent standards for disclosure for private transactions, which play a key role for businesses and consumers, is key; Transparency: standards of disclosure in European securitisation are already very good and much better than for other fixed income products. The market is not failing to revive because of shortcomings in disclosure. Proposals for controversial new requirements like investor name-give up will further dissuade investors and increase costs for issuers, as well as risk conflict with already existing and well-functioning regimes and regulations; Restrictions on market participants: permitting only regulated entities to undertake securitisation will reduce rather than expand the use of this technique and exclude many real economy corporate issuers from the market. Allowing only institutional investors to participate will concentrate, not diversify, risk - and risk damage to financial stability; Risk retention: increasing risk retention for all securitisations, not just STS, will damage the efficiency of securitisation as a funding tool and make it more difficult for banks to transfer risk, thereby reducing their ability to lend to the real economy. Further, for some sectors of the market, such an increase poses an existential threat. These changes to prudential regulation are being proposed in the absence of any evidence supporting change, without any impact assessment and in the face of opposition from the ECB, the EBA and the European Commission - as well as the industry. They should be dropped – the existing regime has been reviewed many times over the years, and shown to work well. – Ends –

The Association for Financial Markets in Europe (AFME) has published a new due diligence questionnaire with a view to standardising and simplifying the process of completing such questionnaires for sub-custodians. Previously, sub-custodians faced the burdensome challenge of responding to clients’ individual questionnaires, which were inconsistent in the questions outlined and covered many of the same risk themes and due diligence topics. Consensus was built to simplify the process of evaluating sub-custodians at the Network Managers (NeMa) conference in 2015. The AFME Post Trade Board subsequently created an AFME Task Force, comprising about 20 Network Managers, with a view to producing the harmonised questionnaire. The work was coordinated by a group of leading European and international banks with operations in Europe that issue and receive proprietary questionnaires aimed at ensuring that securities and cash are held appropriately in safe custody. Using a Thomas Murray questionnaire as a baseline, AFME’s goal was to harmonise 80% of members’ questions. That percentage proved to be significantly higher when AFME recently piloted the document.The harmonised questionnaire provides for certainty in relation to an agreed set of questions and simplification of the process for all parties. Alan Cameron, Global Solutions Sponsor - Clearing and Custody Services at BNP Paribas Securities Services and Chair of the AFME Due Diligence Questionnaire Task Force, commented: “Our industry is delighted that AFME took the lead in addressing this long-running and increasingly burdensome issue. We are grateful to all the banks that contributed to this project and look forward to working with them to ensure the maximum usage in 2017 and the years ahead. Whilst getting the questions agreed amongst ourselves is important, the success of this project will be measured by usage across our industry.” Stephen Burton, Managing Director, AFME Post Trade, added: “AFME’s harmonised and standardised questionnaire will accelerate the completion process, highlight discrepancies and allow for a year-on-year comparison. The finalised document was only possible due to the commitment of the Task Force members. We are pleased that so many banks have decided to use the questionnaire in next year’s due diligence process.”AFME members encourage the use of this document by clients of global custodians, and sub-custodians as providers to global custodians who are involved in sending or responding to due diligence questionnaires.The document will be reviewed by AFME in the third quarter of 2017 to reflect any regulatory changes or major themes which develop over the coming year.The questionnaire is available to all in word format, free of charge, at: http://www.afme.eu/en/reports/industry-guidelines/ Firms participating the development of the questionnaire included: Bank of America Merrill Lynch, BNP Paribas, Barclays, BNY Mellon, Citi, Deutsche Bank, Goldman Sachs International, J.P. Morgan, Nomura, Nordea, Northern Trust, Standard Chartered, Société Générale, Standard Bank, Thomas Murray Data Services, UBS and UniCredit.