Europe’s wholesale markets are operating in a time of unprecedented structural change, which will continue throughout the Brexit negotiation period and beyond. AFME is committed to working with its members through these challenging times and our role as the voice of Europe’s wholesale financial markets is more important than ever. We are acutely aware of the concerns our members and their clients face in relation to Brexit and the risks it poses for creating market fragmentation. We will continue our fact-based engagement with policymakers across the EU27 and in the UK, to make the case for how important it is that Europe’s market eco-system continues to function efficiently and effectively. AFME remains focused on fostering deeply integrated capital markets which enable our membership across the geography of Europe to serve clients with maximum efficiency and minimum disruption. Whatever the outcome of the Brexit negotiations we stand ready to support our members to transition to new regulatory and political landscapes. Despite such challenges there are also profound opportunities. As we enter a period of relative regulatory stability, now is the time for the industry to focus on tackling longer term structural issues. As the title of this year’s Annual Review suggests, re-wiring Europe’s capital markets to ensure they are as effective as possible will be essential for financing growth and investment in years ahead including delivering a credible Capital Markets Union. FinTech developments are revolutionising our industry, enabling enhanced risk management, driving cost savings for firms and significantly improving user experiences. There remains significant potential for firms to utilise technology collaboratively to tackle common challenges in areas such as cybersecurity, anti-money laundering, improving operational resilience and streamlining post trade processes.In this context, AFME is well positioned to remain a trusted partner for its members to lead on addressing these industry opportunities and to work on creating more efficient, client-centric and resilient capital markets in years to come. We are delighted to be holding our first ‘Transforming Global Capital Markets through Technology’ conference in Paris this autumn. This is an event we hope will become the leading European forum for innovation in FinTech and wholesale capital markets. I am now approaching the end of my first year as Independent Chairman of AFME. This year has seen us continue to pay close attention to maintaining our high standards in governance, risk management and financial control on behalf of our Board and membership.I would like to conclude by thanking my fellow Board members for their hard work and wise counsel over the last year. In particular, we are grateful to our outgoing Vice Chair Kostas Pantazopoulos of Goldman Sachs, who is stepping down from the Board after eight years. We also say farewell and thank you to founding AFME Board member, Gianluca Cugno of Banca IMI. Thank you also to Clare Woodman of Morgan Stanley, who has served in the role of AFME Treasurer with great distinction, and will now hand over that role to Ricardo Laiseca of BBVA. Michael Cole-FontaynChairman Association for Financial Markets in EuropeSeptember 2018

AFME and PwC have published a new report on current trends in technology and innovation and their impact on the investment bank of the future. The report, entitled ‘Technology and Innovation in Europe’s Capital Markets’ examines the key trends which are expected to impact the industry over the next five years, providing a vision for the future and identifying the implications for the industry and for future policymaking. The report was developed through a survey and interviews with representative banks on AFME’s Technology and Operations Committee and supported by additional research from PwC. Key findings include: Technology is one of the most powerful levers banks have to address potential disruption, tackle existing industry challenges and to deliver future opportunities. There are four core technologies - Data & Analytics, Cloud Computing, Artificial Intelligence (AI) and Distributed Ledger Technology (DLT) – which have the potential to transform banks and the industry. Whilst 95% of survey respondents identified the opportunity for cost reduction as the most important driver for the adoption of these technologies, only 28% felt that the current investment allocated to this strategic change was sufficient. A clear data management strategy is an immediate priority as it is the enabler for the four core technologies identified. However, across industry, there are varying levels in the maturity of how data is currently being managed and the approaches to realise its future value. New technologies and a focus on innovation will require banks of the future to be increasingly automated, data-led, open and agile. The investment banking industry is expected to be more interconnected, with banks increasingly partnering with third parties to optimise discrete parts of their existing functions. 90% of survey respondents believed that business and IT roles and expertise will continue to merge, and key skills required by banks in the future will be relationship-based (focused on clients, third-party management and internal collaboration) and technology enabled. Competition for future skills will be high, requiring banks to both invest in re-skilling the existing workforce and driving cultural change to attract new talent.

Availble in Frenchand German. AFME and ISDA have published a joint paper examining the challenges faced by UK and EU firms and their clients seeking to transfer their legacy cross-border over-the-counter derivative contracts to an appropriately licensed EU-27 affiliate in advance of Brexit.

AFME welcomes the progress achieved towards the finalisation of the Risk Reduction Measures (RRM) package with the adoption of a position by the Council of the EU and by the European Parliament respectively in May and June 2018. In this paper, AFME provides views on the ongoing negotiations and makes recommendations aimed at achieving financial stability, supporting the EU growth agenda and CMU, and removing fragmentation within Banking Union. The RRM package will further strengthen the resilience of the financial system, building on the very important regulatory reforms and industry efforts introduced in the wake of the financial crisis. It is also an important opportunity to provide stronger foundations to the EU’s objectives of boosting growth and investment, channel capital to the real economy, reduce fragmentation and barriers in the internal market and contribute to the completion of the Banking Union.

AFME, ICMA, ISDA, SIFMA and SIFMA AMG have published a new report that assesses the issues involved with benchmark reform, and makes recommendations on steps firms can take to prepare for the transition from interbank offered rates (IBORs) to alternative risk-free rates (RFRs). The report, which was based on a survey of 150 banks, end users, infrastructures and law firms in 24 countries, shows that: There is a gap between high levels of awareness of benchmark reform and concrete steps being taken to transition from the IBORs to alternative RFRs. Several key issues are identified as being important for a successful and orderly transition, including the need for market participants to develop new cash products and liquidity in derivatives and futures referencing the RFRs. Corporate and financial end users believe a forward-looking term structure for the RFRs is necessary. There is an appetite for regular, globally coordinated information from the RFR public-/private-sector working groups, as well as further clarity on the preferred end state for each IBOR. The transition away from existing IBORs to RFRs is a major capital markets challenge both in respect of new and legacy transactions. AFME and the other trade groups will continue to assist the RFR working groups that are leading the initiative. Read press release here.

In our White Paper 2018 “A Roadmap for Integrated, Safe and Efficient Post Trade Services in Europe” we set out our vision of a future post trade system within the broader context of successful and sustainable European Capital Markets.This new version follows some major recent developments, such as the publication in August 2017 of the Report of the European Post trade Forum, and the publication on 8 March 2018 of European Commission Action Plans on Fintech and on Sustainable Finance.

The General Data Protection Regulation (GDPR) lays down rules for the protection of individuals with regard to the processing and free flow of personal data. The impending departure of the UK from the EU creates significant uncertainty as to the ability of businesses, including banks and investment firms, to continue to transfer personal data between the EEA and the UK post-Brexit. This briefing note is available in English, French,German, Italian and Spanish. This briefing note outlines: The relevant requirements under GDPR for the processing of data and the mechanisms for transferring data between the EEA and third countries; The uncertainty in relation to firms’ ability to transfer personal data between the EEA and UK postBrexit; The importance of personal data sharing in providing an efficient and secure service to corporate and institutional clients; and AFME’s proposed solution - that the European Commission (EC) and the UK should, as a matter of priority:- Start discussions in preparation for Adequacy Decisions without delay; and- Commit to a transitional solution while adequacy assessments are undertaken.

AFME has established an Artificial Intelligence (AI) Task Force with the objectives of increasing awareness of AI in capital markets and supporting the development of future policy. These objectives are intended to enable the continued successful adoption and utilisation of this technological capability for the industry. This first paper by the AI Task Force: • Explores capital markets use-cases and benefits of AI; • Identifies areas where AI may impact the risks faced by financial institutions and proposes control principles for managing those risks; and • Suggests considerations for future policy.

Executive summary has been translated intoFrench, German, Italian and Spanish. AFME has today publisheda new study,Impact of Regulation on Banks’ Capital Markets Activities: Anex-postassessment, which was produced in collaboration with PwC. While there have been many forward-looking studies examining how banks may respond toregulatory reforms, this study is the first that examines how banks haveactuallyresponded to regulations 10 years on from the global financial crisis. 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. Key findings include: 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. Read press release

AFME has 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. Read press release here.