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

Following the publication of the legislative proposal on a framework for a pan-European Personal Pension Product (PEPP), Simon Lewis, Chief Executive at the Association for Financial Markets in Europe said:“AFME supports the creation of a single market for personal pensions and a form of standardised pan-European Personal Pension Product, which could greatly improve the ability of citizens to save for their retirement. Given the current fragmentation in Europe’s retirement savings markets, this project is all the more important and Member States should be encouraged to consider providing tax breaks for the PEPP. ''We commend the Commission for delivering another major proposal under the Capital Markets Union project. Authorities should continue to pursue a proactive agenda to integrate and develop Europe's capital markets''– Ends –

Commenting on the European Commission’s proposed amendments today to the supervisory arrangements for EU and third-country CCPs under the European Market Infrastructure Regulation (EMIR), Simon Lewis,Chief Executive at the Association for Financial Markets in Europe (AFME) said: “The Commission's proposal to amend EMIR appears to be a pragmatic approach which will require a moredetailed assessment particularly with regard to the treatment of third country CCPs. “We are encouraged to see evidence of outcomes based on supervisory cooperation, but would like greaterclarity on terminology such as 'substantially systemically important’ CCP.” -ENDS-

Following the publication of the European Commission’s Capital Markets Union mid-term review today, Simon Lewis, Chief Executive at the Association for Financial Markets in Europe (AFME) said: “The CMU project is more important than ever to boost growth and investment and to channel capital to the real economy. In light of political and economic change, European capital markets are facing a number of challenges, not least from Brexit. We need to ensure that the CMU project, launched in 2015, remains relevant and fit for purpose. AFME supports the wide-ranging initiatives put forward in the review and looks forward to working with legislators to put the remaining building blocks in place.” AFME in particular welcomes the following priorities outlined: Review of the European Supervisory Authorities in particular, to strengthen ESMA's powers and increase the effectiveness of supervision for specific functions where warranted in view of the need to support a functioning CMU; A renewed focus on key growth areas, such as improving access to risk capital for small businesses throughout Europe, as well as infrastructure investment, including through adequate capital treatment of qualified corporate-form infrastructure investments by insurers; Stronger focus on fintech, with the need for an EU licencing and passporting framework for fintech activities being assessed later this year; Sustainable finance, with a strong push to develop a European policy programme on sustainable finance and the transition to a low-carbon economy; A push to improve the EU’s secondary markets for distressed debt, where the European Commission will launch an impact assessment on the Non-Performing Loans framework to enhance data quality and value recovery; Developing local ecosystems in the EU, particularly in Central Eastern Europe. - ENDS -

Following the outcome of the securitisation trilogues today, Simon Lewis, Chief Executive at the Association for Financial Markets in Europe (AFME) said: “The political agreement on the proposals for a Simple Transparent and Standardised (STS) Securitisation framework represents a crucial milestone in the development of a Capital Markets Union. While important details remain to be finalised, we are confident that the long-term impact of the STS framework will be positive. “Attention must now turn to implementation. It is critically important that both the STS Framework and the supporting Level II regulations are implemented in a co-ordinated, simultaneous and holistic way. To adopt a piecemeal approach would risk a damaging down-draught on issuance as higher capital requirements for bank investors take effect before lower capital requirements for insurers are introduced. “AFME therefore calls on the European institutions to choose an implementation date for the STS framework which will allow enough time for this important secondary legislative work to be completed. We urge colegislators to support this approach to help ensure the successful launch of the new STS framework as well as the revival of the wider European securitisation market.” -ENDS-

London, UK, 25 May 2017 - Commenting on the publication today of the Global Code of Conduct for the FX market – which provides a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market – James Kemp, Managing Director of the GFMA’s Global FX Division said: “From the outset, the GFMA’s FX Division has been fully supportive of this initiative to create a Global Code of Conduct for FX. Given that foreign exchange underpins international trade and investing, we believe a single, global code provides a common reference point to encourage good practice and re-build public confidence in the FX market. “This is an opportunity for all wholesale FX market participants to demonstrate that they can put the right controls and guidance in place that are consistent with the principles of the Code and that ensure the market is operating fairly and effectively. “In response to the first phase of the Code, published in May 2016, our members have already made significant enhancements to their conduct and control standards. For example, placing greater emphasis on the first Line of Defence, strengthening the control environment and establishing more robust oversight structures. More emphasis is being placed on conduct training, as well as adherence to procedures and policies. However, there is no room for complacency. With the complete Code now published, our members will continue to strengthen their technology, policies and procedures to ensure they align with the principles.” – Ends –

AFME has today responded to the European Commission’s Public Consultation on the operations of the European Supervisory Authorities (ESAs). Simon Lewis, Chief Executive of AFME, said: “The European Supervisory Authorities play an important role in the European regulatory landscape and have broadly been successful in fulfilling challenging mandates since their establishment in 2011. While the institutional framework has been largely fit-for-purpose, we believe that a number of reforms should now be implemented to ensure that the ESAs will continue to function well in a changing political and market environment. This consultation is therefore very timely and AFME welcomes the opportunity to respond to it.” Overall AFME believes that the ESAs should take a more strategic role and be given greater autonomy by defining and pursuing a common EU approach. Enhancing regulatory coherence and consistency to avoid market fragmentation should be a top priority. In order to be able to deliver on an ambitious agenda, the resources of the ESAs should also be increased appropriately. The governance of the ESAs should be strengthened. Without reforming the current governance arrangements, increasing the powers of the ESAs would be less effective. In its consultation response, AFME identifies the following eight key priorities for the ESAs: supervisory convergence should remain a key priority as it reduces the fragmentation of the Single Market and enables firms to operate cross-border more easily. improve the involvement of stakeholders by creating more opportunities for contributions from market participants in the Level 2 and Level 3 processes, improving the transparency of how the ESAs deal with input from stakeholders and strengthening the role of the stakeholder groups. work with realistic implementation deadlines ensuring that sufficient time is given between the finalisation of Level 2 texts and their implementation. reform the governance of the ESAs enabling them to pursue a more common European approach by giving the Chairs and Executive Directors voting rights and introducing independent members on the Boards of Supervisors. increase the ESAs’ powers in certain areas of cross-border activity. Provide ESMA with “Emergency Relief” type of powers to temporarily suspend the application of regulatory requirements. give the ESAs a more prominent role in the equivalence assessment process following an outcome-based approach supporting open capital markets. increase the resources of the ESAs appropriately given the current workload and the proposed additional tasks. We would expect the ESAs to optimise their efficiency in a way to minimise the need for additional funding. accept a funding system which would be partly funded by the industry but subject to certain conditions and further detailed consultation with the industry. Although it is appropriate to consult on the functioning of the ESAs at this time, we believe it will be important to further reflect on the conclusions of this review at the time when the details of the future EUUK relationship are known. Any arrangements for supervisory and regulatory cooperation between the EU and the UK, which should involve the ESAs, can then be decided upon. AFME’s full consultation response can be found here.

Following the UK Government’s decision to invoke Article 50, AFME has today published a paper outlining the implementation issues facing wholesale banks, their clients and supervisory authorities.The paper, entitled “Implementing Brexit: practical challenges for wholesale banking in adapting to the new environment”, assembles the available evidence to help Europe’s policymakers reach an informed view of the potential challenges in Brexit implementation for wholesale banking and capital markets and how best to mitigate the risks arising to financial stability and market functioning of the two-year timeframe. Simon Lewis, Chief Executive at AFME, said: “Financial stability and market efficiency must be safeguarded during the Brexit implementation process and thereafter. These are essential ‘public goods’ for the European economy. Given the tight Brexit timescale dictated by Article 50, market participants and regulators are already having to consider important decisions amid considerable uncertainty. Building on our February study with PwC on operational complexity, this paper seeks to provide Europe’s policymakers with insights on the range of implementation challenges facing Europe’s capital markets.”Main implementation challenges outlined in the paper: Implementation challenges for clients: Brexit creates significant uncertainty for clients and counterparties and the potential for disruption to essential contracts; particularly for clients holding (or planning to hold) long-dated contracts such as swaps, loans or cross-border revolving credit facilities. after Brexit, a bank which had signed a contract may no longer have the required approvals to lawfully perform the services it had committed to, or can no longer access market infrastructure. there is particular concern about ’cliff edge’ risk to the operations of UK central counterparties, which currently manage more than a quarter of global clearing activity. there could be an impact on capital raising as EU27 companies may be uncertain whether they can or should rely on a single European hub for ECM and DCM services. Implementation challenges for supervisory authorities: Brexit will require supervisory capacity to follow a changing pattern of markets and banking business. In much of the EU27, expertise in markets supervision is in relatively short supply. there will be a major challenge for the SSM and national authorities to ensure that sufficient resources and expertise are in the right place to provide timely delivery of licence and model approvals and maintain or supervise rigorous, common standards for wholesale markets business. new mechanisms are also required for cross-border regulatory cooperation, avoiding fragmented capital markets and ensuring financial stability. Implementation challenges for wholesale banks: for international banks based in the UK, the main operational impacts of restructuring for Brexit are: establishing or expanding entities in the EU27; obtaining necessary licensing and approvals; securing the right people and premises; building technology; and integrating with new market infrastructure. a recent study by PwC for AFME1 found considerable variation in the required scope and scale of transformation activities across different banks. Overall the evidence that suggests that a 3-year implementation period will be required following the completion of the Article 50-exit negotiations. the eventual plans that banks will implement depend heavily on the requirements set by regulators and supervisors, adding a dependency and additional source of variability to the process. Key recommendations from AFME Given the scale, complexity and risk of the Brexit implementation challenges for wholesale banking, AFME is highlighting the need for significant support from policymakers and regulators comprising three elements: coordination; flexibility; and time. coordination: Market functioning and the implementation process would benefit greatly from coordination by EU27 and UK policymakers in four key aspects: legal certainty, financial stability risks, market capacity and supervisory policy. flexibility: Policymakers should be prepared to provide flexibility where it is necessary to support successful implementation of any change programs by the wholesale market participants, including on contracts, entity approval and licensing, as well as model approval. time: Transitional arrangements could comprise: a bridging period to avoid short-term disruption until the new trade relationship between the UK and the EU27 is ratified, should that prove unachievable within the two-year Article 50 period; and an adaptation period, following the bridging period, which would enable phased adjustment to the new trade relationship. The sooner that a phasing-in period is confirmed then the smoother the adjustment process will be. Click here to download the report Press release also available in: French German Italian Spanish