Commenting on the publication of the final report of the Parliamentary Commission on Banking Standards, Simon Lewis, chief executive at the Association for Financial Markets in Europe (AFME), said: “The report of the Parliamentary Commission on Banking Standards stresses the crucial role of banks in serving the needs of the real economy. This fundamental point must not be lost as these many and interlinked recommendations are considered. “The report is an important addition to the series of initiatives since the financial crisis to ensure the stability of the financial system. Since 2008 the industry has introduced significant changes to compliance procedures, capital holdings and incentive structures, among others, while operating in a more active regulatory environment. “This report adds another dimension to the post‐crisis response by assessing how we can improve standards in the banking industry, and the suggestions need careful thought. In our submission to the Commission’s work, we stressed that responsibility needs to be embedded at all levels within banks. The operational challenge, including how this applies to all banks with operations in London, should not be underestimated. A key element will be where the line is drawn between the obligations of those working in the banking sector and those in equivalent positions in other sectors.” ‐ENDS‐

Europe’s businesses want more flexibility in accessing funding, through expansion of capital markets channels such as European private placements, infrastructure, real estate, high yield and securitisation in order to improve distribution channels to capital markets to complement existing bank lending, according to a new report from the Association for Financial Markets in Europe (AFME). The Unlocking Funding for European Investment and Growthreport is based on in-depth interviews with borrowers, investors and banks in nine EU countries, carried out for AFME by Oliver Wyman. The study includes new insight from borrowers, owners of small businesses, CFOs of large companies, insurers, pension funds and asset managers on how the capital markets work for them and what changes they think will unlock the investment needed for growth. Commenting on the report, Michael Cole-Fontayn, Member of the Board of AFME and Chairman, BNY Mellon EMEA, said: “Growth and financing of the real economy in Europe clearly faces structural challenges. European businesses have traditionally relied on bank funding rather than accessing the capital markets. Borrower and investor feedback underlines that capital markets channels need to be expanded alongside bank lending to ensure that Europe’s businesses have sufficient funding for economic growth.” Clare Francis, Chair, AFME Financing Growth Working Group and Managing Director, Head of Global Corporates, Lloyds Bank said: “By concentrating on the perceptions and specific concerns raised by the users and providers of financing, we believe this report provides a different perspective to help inform the debate within Europe on actions that can be taken to improve the outlook for growth. Seen through the lens of a diverse range of businesses from across Europe the report provides both clarity and granularity as to where the financing markets are working well and where there are problems to be addressed. “Understanding the reality and issues from the users’ perspective will give greater focus on the key pressure points and practical recommendations for their resolution that have direct support at the grass roots level.” Report Findings: Improving access to finance for SMEs Interviewees believe that lending to small businesses (SMEs) is likely to remain primarily in the hands of banks due to the small size of transactions and the local nature of commercial relationships, although they say that non-bank sources such as fund managers could add some capacity over time. Securitisation could play a larger role, if the economics of SME loan securitisation can be restored, as an efficient way for banks to be able to free up capital and raise cash for further lending to existing or new SME borrowers. SMEs also said that it was not easy to understand the range of government and central bank schemes at national and European level. Improved information and communications would help them to understand what was available and how to obtain it and improve competition and transparency. Hedging for large corporates Large corporates say they do not generally experience problems with accessing funding but they would like to see action on the unforeseen and unintended consequences of regulation which is reducing availability of the products they need to be able to hedge business risk, as well as increasing their cost of capital. More flexibility in accessing funding for large and mid-size corporates Both large and mid-sized corporates would like greater flexibility in accessing funding as they need to be able to tap large pools of cash quickly, depending on market conditions. They say that certain capital market sources of finance, such as the European private placement and high yield bond markets should be expanded, which could be achieved through expanded legislation as well as more harmonised EU insolvency regulations respectively. Almost fifty target actions identified In terms of general themes, interviewees also cited two overarching constraints: the macroeconomic outlook as a barrier to growth and investment and the unforeseen real world consequences of regulation. Overall, the report identifies almost fifty possible targeted actions, each addressing a specific obstacle, which interviewees believed could achieve significant improvements. The obstacles and solutions are largely specific to country, sector or product -- for example, businesses in crisisrelated countries and sectors such as infrastructure finance and commercial real estate have particular issues -- and the solutions will require coordinated actions across industry and public authorities. Infrastructure funding Infrastructure funding is crucial to long term growth and productivity. Historically, infrastructure funding in Europe has been provided by banks. However non-bank funders, such as insurers, could be more active if certain issues were addressed. Investors said they were cautious of highly localised practices in procurement, as well as uncertainty around future tariffs. Governments and policymakers could reassure investors by standardising national or pan-European tariff guidelines and enacting regulatory risk compensation measures, as well as by introducing simpler planning and procurement procedures. Although insurance companies should be well placed to invest, given they generate approximately €1 trillion each year in investable cash flow, uncertainty over impending Solvency II and IORP pension fund regulation is holding back investment in long term asset classes. Insurers are concerned about how mark-to-market volatility for long-term investments is or is not dampened by matching adjustments, as well as how certain discount rates are used and how capital charges for certain real economy asset classes are calibrated. Pension fund asset eligibility should also be reviewed. -ENDS-

Simon Lewis, chief executive, the Association for Financial Markets in Europe (AFME) said: “We welcome the decision to make a legal challenge to the proposed financial transaction tax amongst 11 EU member states, under enhanced cooperation. “This is a tax that will damage markets beyond the 11 states that are considering it, across Europe and also internationally. It will act as a brake on economic recovery by increasing costs to investors. “All the evidence shows that the tax will have serious harmful economic effects in a number of ways: taxing securities will increase the cost of raising capital for Europe’s businesses and increase the cost of debt funding for both businesses and governments. In addition, taxing derivatives will have a negative impact on hedging transactions undertaken by the real economy in order to manage risk.” -ENDS-

Commenting on the European Commission’s proposal for a financial transaction tax issued today, Simon Lewis, the chief executive at the Association for Financial Markets in Europe (AFME) said: “The Commission’s proposal for a financial transaction tax in 11 EU member states is regrettable and likely to serve as another brake on economic growth. “This tax will have a negative impact on business in several ways. The tax on equities will increase the cost of raising capital for Europe’s businesses – and the tax on bonds increases the cost of debt funding for both businesses and governments. The tax on derivatives will also have a negative impact on hedging transactions undertaken by the real economy in order to manage risk. “AFME will continue to analyse the Commission’s proposals not least with regard to their extraterritorial impact, at this time when the EU and US have launched important and timely free trade negotiations. As participants in the G20, the EU and its members have committed to work together to support policies that will lead to sustainable and balanced growth – the imposition of an FTT with extra-territorial reach runs counter to that important objective. It is essential that the economic evidence is fully taken into account as the negotiations are taken forward.” -ENDS-

The Association for Financial Markets in Europe (AFME) and the Securities Industry and Financial Markets Association (SIFMA) today released the following statement after the European Council announcement that it would seek a broad free trade agreement with the United States: “We strongly support a comprehensive US‐EU trade and investment agreement, which should include financial services. “The US and EU financial markets are the most developed and intertwined in the world. We support efforts to initiate negotiations on a comprehensive trade and investment agreement because it presents a unique opportunity to enhance the efficiency of the transatlantic financial markets, facilitate trade, and deliver lower cost products to investors. It will also enhance capital formation for issuers in both the US and EU. “We encourage negotiators to focus on questions of market access, extra‐territoriality, and on enhancing regulatory convergence and efficiency that allows for increased growth and more efficient markets. We look forward to working with negotiators to secure an agreement that is reflective of the global needs of financial services firms and their customers.” ‐ENDS‐

A significant proportion of European investors say that the MiFID II proposal to force all quotes in fixed income instruments to be firm and disclosed to the market, will have a negative impact on trading activity and reduce liquidity, according to new research from the Association for Financial Markets in Europe. In AFME’s Investor Survey of Fixed Income Liquidity, 56% of investors polled said they believe the MiFID II pre-trade transparency regime will have a negative impact on market activity through: a decline in trading volumes; a reduction in transaction size, compromising the execution of large orders; an increase in the cost of trading; or a stop to trading altogether. The fixed income market continues its migration from voice to electronic trading, though more slowly than previously envisaged. More than one third (37%) of respondents said that electronic trading has increased over the past two years and 39% expect it to increase over the next 12 months. However, this growth is evolving from a low base: in 2012, 55% of investors conducted no more than 40% of their trades electronically. The findings also show that the majority (63%) of investors believe a choice of both electronic and voice methods of trading is necessary in order to maintain optimal market liquidity. Compared to the large investors, a significant proportion of small investors¹ (23%) believe that voice is the only method of trading necessary to maintain optimal market liquidity. In addition, the three key reasons highlighted by investors for choosing to trade by voice include ‘to improve liquidity’ (52%), followed by the ‘size of the trade’ (51%) and ‘certainty of execution’ (44%). The Investor Survey of Fixed Income Liquidity findings will be discussed in more detail at AFME’s 8th Annual European Market Liquidity Conference, which takes place in London on 13 February 2013. Christian Krohn, a managing director at the Association for Financial Markets in Europe commented: “The survey findings send out a clear investor message for European policymakers, namely that many investors believe MiFID’s pre-trade transparency proposals² will have damaging effects on trading activity, especially with regard to large trades. The European Council and Parliament amendments tolimit MiFID requirements to trades below a certain size are to be welcomed. However the Council proposal to broaden the scope to illiquid instruments will still hamper trading activity. “The survey also demonstrates the need to maintain the choice of both voice and electronic as methods of execution, which is seen by fixed income investors as essential to maintain optimal market liquidity. “Proposals to force all over-the-counter voice trading to take place under MiFID’s proposed transparency rules will remove this flexibility and will have unintended damaging effects on liquidity.” -ENDS-

Commenting on today’s agreement by European finance ministers on the European Central Bank (ECB) becoming a common bank supervisor, Simon Lewis, chief executive of the Association for Financial Markets in Europe (AFME) said: “ECOFIN’s decision should be welcomed as a major step forward and also an essential element in resolving the Eurozone crisis. “The Single Supervisory Mechanism forms a key component of banking union and the fact that Member States have now reached agreement is a welcome demonstration of the strong political commitment to this important project. It is essential that this momentum is maintained. “Banking Union should enhance the Single Market as a whole and AFME supports the significant efforts to achieve fair and balanced decision‐making for the European Banking Authority (EBA). The EBA should also have authority to develop a supervisory handbook for the Single Market as a whole in order to ensure high quality, consistent supervision for all banks in Europe.” ‐ENDS‐

The US Treasury decision to exempt foreign exchange forwards and swaps transactions from the clearing and exchange trading requirements of the Dodd-Frank Act is a critical step in ensuring the safe functioning of a well performing market and in promoting clarity in the international regulatory regime, according to the Global FX Division¹ of the Global Financial Markets Association2. Subjecting FX transactions to mandatory clearing would have introduced new risks into a stable market that performed well during the crisis with serious negative consequences for corporate and asset manager end-users, who use foreign exchange for international trade and investing and as a key element of their risk management programmes. Research3 shows that the key risk in foreign exchange is settlement risk, comprising 94% of the estimated maximum loss exposure in a trade for FX instruments with a maturity of six months and 89% for instruments with a maturity of two years. Recent consultations from several jurisdictions have consistently focused on settlement risk reduction as being the most appropriate mitigation technique for the FX markets. This settlement risk is already managed effectively through the existing CLS settlement system, which covers 17 currencies and is regulated by the Federal Reserve Bank of New York - who also Chair the joint oversight committee with 21 other Central Banks. The US Treasury decision also recognises the FX industry’s efforts along with DTCC to develop a global trade repository to store FX trade information, thereby providing additional oversight for regulators and transparency for users. The global build out of this repository, already in testing, will increase its effectiveness for regulators and efficiency for participants. James Kemp, managing director of GFMA’s Global FX Division, commented: “We very much welcome the US Treasury ‘final determination’. Moving FX swaps and forwards to centralised clearing would not only have created additional costs for businesses and investors, but also increased systemic risk. After such a detailed consultation period, this final decision from the US Treasury provides the clarity the industry needs to now further develop the infrastructure of the future. “The US Treasury has identified that the key risk in FX is settlement risk and that it is already effectively managed. We urge regulators in other jurisdictions to acknowledge the US Treasury’s key points and follow suit in exempting FX from mandatory clearing and execution requirements. This will ensure that the global FX market is not fragmented into different regimes and remains cost effective for end users”. -ENDS-

Prime Collateralised Securities (PCS) - an industry-led, nonprofit initiative to develop a label for high quality securitisations – today marks its official opening with a series of high-profile Board appointments. PCS has been set up to grant labels for high quality securitisations that meet best practice in terms of quality, transparency, simplicity, and standardisation. It expects to grant the first label in the next month. The new PCS Board comprises: Francesco Papadia, former Director General for Market Operations at the European Central Bank Anneli Peshkoff, former Director of Treasury at the European Investment Bank Prof Jose Campa, former Secretary of State for the Economy in the Spanish Ministry of Economy and Finance Gregor Gruber, Allianz Investment Management, member of the Investment Management Board Gaelle Philippe Viriot, Head of ABS at Axa Investment Managers Richard Bartlett, Head of Corporate Debt Capital Markets and Risk Solutions, RBS Mirco Bianchi, Head of Group Finance, UniCredit Michaela Ulrici, Chair of the Board, NautaDutilh Ian Bell, Head of the PCS Secretariat In addition to the Board appointments, the PCS Secretariat - which will grant and monitor the PCS label - has confirmed the Irish Stock Exchange, True Sale Initiative and KPMG as screening partners to assist it in checking key documentation. Access to securitisation markets for issuers (corporates and banks) is increasingly important to overcome funding shortfalls[1] for the real economy in Europe. Asset Backed Securities can be an important instrument, especially as they do not use up the same credit line capacity as other investments, such as corporate and covered bonds. Yet, despite the very strong underlying performance of European asset-backed securities since 2007, the smaller investor base and the reduced level of issuance are affecting companies reliant on capital markets, as well as Europe’s broader economic recovery. The PCS initiative has been developed by a broad group of leading European finance professionals comprising issuers, investors, arrangers, and other market participants, in collaboration with other European industry associations, as well as observers such as the European Central Bank and the European Investment Bank. PCS is more than just a positive label for eligible securitisations – it provides agreed market standards, as well as an enforcement mechanism of these agreed standards, based on a label which can be granted and withdrawn depending on compliance and as verified by the PCS Secretariat. Ian Bell, PCS’s Head of Secretariat, commented: “We are officially open for business and it’s exciting to be part of such an important initiative, which has seen so much support from investors, issuers and policymakers alike. The PCS initiative has received strong support from Europe’s key institutions, such as the European Central Bank and I am delighted with the level of experience on the PCS Board, which will be led by Francesco Papadia. “Europe’s securitisation market is a necessary component of funding the growth that Europe so badly needs and the PCS label will go some way towards providing investors with the reassurance they need. “We look forward to a constructive dialogue with policy makers on how we can help to support a strong and transparent securitization market in Europe. In this context we felt encouraged by the European Commission’s request to the European Insurance and Occupational Pensions Authority (EIOPA) – the pan-European insurance regulator - to revisit the capital charges imposed by Solvency 2 on insurers for holding securitised assets. For the sake of Europe’s economic recovery, let’s hope this is the beginning of a fruitful interaction.” Newly appointed PCS Chairman Francesco Papadia added: “The PCS label will bring quality, transparency and standardisation to the market, which will deepen the securitisation investor base in Europe and, in turn, improve overall liquidity. Europe needs a healthy securitisation market and we are confident that this initiative, alongside regulatory changes, will revitalise the market as a source of funding for the real economy.” -ENDS- [1] Recent estimates show that €650 billion of senior unsecured and covered bond funding will mature in 2012 for European banks; for sovereigns, funding of over €900 billion will be needed and that an additional €1.5 – €1.9 trillion of funding is needed to power any growth. Sources: Bloomberg and BAML Global Research Dec 2011, Standard & Poor's May 2012.

New requirements for European banks to ring‐fence their significant market‐making activities would increase funding costs for banks and restrict their ability to deliver affordable financing and risk management services to European customers at a time when Europe needs capital markets funding, according to a joint paper issued today by the Association for Financial Markets in Europe (AFME) and the International Securities and Derivatives Association (ISDA). The paper was submitted this week to the European Commission in response to a consultation on the recommendations of the High Level Expert Group on reforming the structure of the EU banking sector, also known as the Liikanen Group. AFME and ISDA caution that the negative impact of the mandatory separation proposals on returns is likely to cause some banks to re‐evaluate the economics of continuing with certain market‐making related business lines, which could reduce their ability to provide liquidity to the capital markets, with a potentially significant detrimental impact on European growth. It could also weaken the structure of the European banking sector, risk fragmenting the single market and reduce competition, adds the joint paper. Furthermore, AFME and ISDA voice their concern that there are already various regulatory initiatives, completed as well as proposed, that seek to address the same issues. If these regulatory measures are not co‐ordinated effectively, it could result in substantial regulatory inconsistencies and would ultimately undermine the primary goal of reducing risk in the banking sector. Simon Lewis, Chief Executive of the Association for Financial Markets in Europe, commented: “AFME agrees with the core objectives of the Liikanen Group’s work, particularly the goal of reducing risk in the banking system, promoting competition and maintaining the integrity of the single market. However, if the Liikanen proposals are implemented as they stand there is a serious risk that the capital markets will be unable to meet Europe’s financing needs at this time of very subdued bank lending. “The impact of these structural separation recommendations needs to be assessed, particularly regarding any potential systemic and operational consequences. We therefore strongly urge the Commission to conduct a thorough impact study to consider the balance of costs and benefits arising from this recommendation.” George Handjinicolaou, Deputy Chief Executive Officer and Head of Europe for the International Swaps and Derivatives Association, said: “ISDA is committed to safe and efficient markets and supports the goals of the Liikanen Group to reduce risk in banks and the banking system. However, we are particularly concerned by the Liikanen proposals to impose a one‐size‐fits‐all business model on banks with significant trading activities. We firmly believe that such an approach is unnecessary and it would risk undermining HLEG’s stated key objective of ensuring a banking sector that is capable of financing the real economy. “We urge the Liikanen Group to conduct a thorough impact study to assess the costs and benefits of their recommendations and strongly encourage efficient co‐ordination of regulatory initiatives to ensure the goal of reducing risk in the banking sector is achieved without harming global financial markets”. Please click here: http://www.afme.eu/AFME‐ISDA‐response‐Liikanen‐HLEGrecommendations to view the joint AFME ISDA response submission to the European Commission consultation on the recommendations of the High Level Expert Group on reforming the structure of the EU banking sector. ‐ENDS‐