The Association for Financial Markets in Europe (AFME) has today issued a comment in response to the European Council agreement on the MiFIR proposal to strengthen market transparency. Adam Farkas, Chief Executive of AFME, said: “This is a milestone agreement which moves forward negotiations on MiFIR – a regulation which governs how secondary markets function in the EU and which is fundamental for their competitiveness and attracting investments within and into the EU. While we still need to understand the details of the Council agreement, the progress made is clearly a step in the right direction and we commend the Czech Presidency’s hard work for getting this over the line. “AFME members in particular welcome the progress made by Member States in reaching this agreement by recognising the need for investor choice in equities trading mechanisms which will allow for cheaper and more efficient execution to be delivered to end investors. However, imposing artificial limitations on investors’ choice by maintaining a hard volume cap in the level one framework may still hinder the EU’s ability to attract global investors to its markets. “AFME is concerned with the rigid approach the Council has adopted to bond market transparency. These policy changes are not justified by any data analysis and, as a result, there is a significant risk that liquidity provision in illiquid or large sized bond trades could be hampered. The Council’s approach removes the possibility for flexibility to be allowed during periods of stress where investors’ demand for liquidity can spike significantly. It represents another constraint on market makers, which are already subject to strict regulatory limitations on the use of their balance sheets for liquidity provision. “Going forward, AFME would urge the European Parliament to follow suit in agreeing its own position, ensuring that it keeps the attractiveness of EU fixed income and equity markets for investors at the forefront of its considerations. AFME also suggests that it carefully reviews the potential negative impact of hard coding deferral periods for bonds into level one legislation. As an alternative approach, AFME would encourage the Parliament to consider delegating greater powers to supervisory authorities, which should adopt a data driven approach to the calibration of the deferral regime and consider the combined impact of transparency rules and other regulatory requirements on banks’ capacity to serve their clients.” Separately, the Council has also agreed an approach on the Central Securities Depositories Regulation. Adam Farkas, said: “AFME has long argued that the implementation of mandatory buy-in requirements would have a disproportionately negative impact on the liquidity and competitiveness of EU capital markets. While we believe that a complete removal of the mandatory buy-in regime is the best approach, we welcome the Council’s position to view mandatory buy-ins as a measure of last resort, to be activated subject to assessment and only in the case where the level of settlement fails would be substantial in the EU. We support further focusing on all other tools that would be more appropriate to support settlement discipline and efficiency in Europe.” In more detail: On Consolidated Tape The establishment of a properly constructed consolidated tape for equities and bonds is an important incremental step toward further integrating EU markets, reducing home biases in EU citizens’ investments and attracting international capital to the EU. AFME would nevertheless liked to have seen more ambition in the Council’s approach by the establishment of a real time pre-trade, as well as post-trade, tape for equities. We are somewhat perplexed, however, that consolidated tape revenue share is not extended to all execution venues providing their market data. Equity market structure issues: We are pleased to see the general direction of travel towards reducing complexity in EU equities market structure. This acknowledges that restrictions targeting only certain execution methods, such as those originally proposed on systematic internalisers and midpoint trading, would reduce the facilitation of cheaper, more efficient equity transactions to the detriment of end investors. However, maintaining a volume cap remains directly at odds with international best practice, threatening the EU’s objective to effectively compete with other markets globally and it detracts from the EU’s status as a destination to invest or raise capital. On Fixed Income While we support having 5 categories of bond deferrals, we are disappointed to see that maximum deferral times continue to be hardcoded into the Level One legislation. Not only does this approach lack the flexibility that is critical, especially in times of market volatility, it does not appear to be justified by any data driven analysis.An incorrectly calibrated regime,resulting in inadequate deferral periods that lead to liquidity providers experiencing undue risk, will upset the fine balance between transparency and liquidity and end up negatively impacting end investors. On Designated Publishing Regime: We are supportive of the Council’s inclusion of the Designated Publishing Entity to create a regime where firms will be able to opt in as designated reporters, thereby decoupling the reporting requirement from the obligations under the systematic internaliser regime. – Ends –

AFME has today published an updated set of ESG due diligence questions for use by European capital markets participants. The updated guidelines follow on from the April 2020 release of the first ever set of ESG guidelines for the European high yield market. According to AFME research, the European high yield sustainability-linked bond market grew significantly during 2021 to €15.7bn on 42 deals. This compared to no European high yield sustainability-linked bonds issued in or before 2020. In 2022, and in line with general market conditions, such issuances fell significantly, but AFME expects that these kinds of bonds will remain an important part of the European high yield market. In response to such large issuance volumes, regulatory policy and market practices are also evolving. The AFME due diligence questions have therefore been updated since 2020 to reflect these changes and are intended to provide a suggested framework for market participants’ ESG due diligence. Gary Simmons, Managing Director of AFME’s High Yield Division, said: “ESG finance is a fast-evolving market. We originally published our guidelines at a time when the ESG market was still developing. Over 2020 and 2021, we saw unprecedented growth in the market for green and sustainability-linked financings. The AFME High Yield Division’s remit is to ensure that the European high yield markets are able to run as efficiently and effectively as possible, so it was important to reflect recent ESG best practices and provide the benefit of our learning over the last two years to everyone in the market.” Cynthia Cheung, Vice-Chair of the AFME High Yield Division and Managing Director and Associate General Counsel at Bank of America, said: “COP 27 caused a lot of us to pause and think again about the ways in which our markets can have a positive impact on the wider world, and it seemed the right time to look at our materials again. Like so much of AFME’s work, we believe that these updated materials have immediate practical usefulness for market participants, and our work in this area will continue.” Adam Farlow, member of the AFME High Yield Sustainable Finance Committee and Partner at Baker McKenzie, added: “As shown at COP 27, commitment to net zero and the inherent significance of climate finance within that have never been stronger. It is vital that AFME continues to support issuers and market participants in their transitions and these revitalised ESG due diligence questions provide excellent parameters to guide production of full and cogent disclosure, accurately reflective of the rapidly evolving underlying current and lending legislation.” The updated 2022 due diligence questions are available here. AFME is concurrently working on a full update to its ESG guidelines for release in early 2023 -ENDS -

Commenting on the publication of the European Supervisory Authorities’ (ESAs) response to the European Commission's Call for Advice on the review of the securitisation prudential framework, Shaun Baddeley, Managing Director of Securitisation at the Association for Financial Markets in Europe (AFME), said: “We are very disappointed on first reading of the report. There is a weight of evidence supporting recalibration of both the bank and insurance prudential frameworks, but the ESA’s recommendations conclude that no real change is needed at this stage. Postulating that it is probably not worth making calibrations more risk sensitive and proportionate because they cannot quantify the benefit is no justification for inaction. Regarding advice on the banking sector: “There is a wide consensus among issuers and investors that existing regulatory imbalances have been a decisive factor in the stagnation of securitisation in Europe. It is fundamental to address aspects of the regulatory framework which remain miscalibrated and are holding back the tool’s potential to support the economy. “The EBA makes eight recommendations to the Commission, which primarily focus on resolving inconsistencies with Basel standards. None of these deal head on with two key prudential challenges for banks that are holding back the securitisation market in Europe, including the miscalibration of bank capital for securitisation and the disproportionate treatment of securitisation within the Liquidity Coverage Ratio. Both of these challenges disincentivise banks from participating in this asset class. What is needed here is a temporary adjustment to the p factor until a review of the securitisation standardised formula is concluded and any long-term adjustments are made. “On a positive note, the EBA does recognise the merit in rethinking the formulation behind securitisation risk weights if this is done at the Basel level. “One of the EBA’s recommendations is to reduce the risk weight floor for originators of “resilient” transactions to support issuance of significant risk transfer transactions of granular SME and corporate portfolios, for example. However, this change will be negated for banks impacted by the phase in of Basel III, due to major distortions created by the output floor formulation for securitisation, as evidenced by recent AFME and Risk Control Ltd research. Regarding advice on the insurance sector: “EIOPA’s section provides no recommendations but posits that while there may be logic in developing a risk sensitive framework, there is little point in doing so, given the limited impact the implementation of a proportionate framework would have. AFME disagrees with this view as it disregards the evidence that in the run up to the implementation of Solvency II, substantial insurance ABS assets under management were sold as a result of the impact of Solvency II on their own capital positions. What is needed here is for EIOPA to deliver on many of their findings and introduce a risk-based framework that recognises the differencebetween senior, mezzanine and junior risk for both simple, transparent and standardised (STS) and non-STS securitisations and assign appropriate capital charges at each level. “The report also suggests that there may be other elements, regulatory or other, that need to be considered, which likely inhibit the resurgence of the market, i.e. it argues that the prudential framework is not the sole factor driving a decade of decline in Europe. While this is true, it ignores the fact that European prudential frameworks are disproportionately punitive when compared with comparable asset classes within Europe or with prudential frameworks across the world. “EU legislators should use the opportunities provided by the CRR 3 discussions and Solvency 2 discussions to acknowledge the importance of a well-functioning securitisation market and introduce targeted adjustments to support proportionate and risk-sensitive requirements for this mechanism in Europe.” – Ends –

The Association for Financial Markets in Europe (AFME) has today published a study setting out a comprehensive overview of the current European regulatory landscape for green securitisation, highlighting the challenges preventing it from fully contributing to Europe’s green transition, as well as the full scale of its potential growth by 2030. Shaun Baddeley, Managing Director of Securitisation at AFME, said: “Through this report, we are aiming to provide a clear picture of the current status of the European green securitisation market and to highlight the huge potential that it has to contribute to Europe’s green financing needs. Outside Europe, securitisation has already become an important tool to channel capital into green lending, however Europe is lagging far behind other global markets such as the US and China. This is partly due to regulatory impediments which prevent the growth of the wider European securitisation market. Another reason is the current lack of green assets to be securitised – although, this is expected to increase in the coming years. “The EU Green Bond Standard legislation (EuGBS) has the potential to be an important enabler for the growth of the market. However, it is vital that a well-designed framework for green synthetic securitisation is incorporated into the EuGBS at the earliest opportunity as it is the most cost effective way of securitising project finance and other green assets which cannot be easily securitised via true-sale (or traditional) securitisations.” AFME’s latest report highlights that the European green securitisation market is lagging behind other global jurisdictions, including: In the course of five years, only 24 securitisation transactions with ESG characteristics have been issued. Although Europe is a leading region for green and sustainable bonds, Europe’s green securitisation market remains subdued. For instance, between 2019-2022 green securitisation issuance represented only 1.4% of total European green issuance, whereas it accounted for 8.1% in China and 32.3% in the US. The report goes on to highlight the potential scale of future green securitisation issuance by 2030 providing estimates for growth based on data from S&P Global Ratings. The findings are: Residential mortgage loans on energy-efficient properties: Gross green mortgage lending could reach €125 billion annually across eight European RMBS markets, i.e. Belgium, France, Ireland, Italy, the Netherlands, Portugal, Spain and the U.K. Lending for green home renovation: If residential buildings reach a 3% renovation rate by 2030, this could generate an annual funding requirement of about €75 billion, which may partly be addressed by further mortgage advances that are securitisable. This figure assumes a fully-funded typical renovation cost of about €17,000 per property, and considers the same eight European RMBS markets mentioned above. Electric auto financing: In respect of new battery electric vehicles, securitisable financing could reach €80 billion annually, while there could be a further €30 billion in annual financing required for used ones. These estimates concern only the five major European auto ABS markets, namely France, Germany, Italy, Spain and the U.K. AFME’s key recommendations for unlocking the potential of the green securitisation market, include: Introducing a framework for green synthetic securitisation in the scope of the EuGBS in short order. Addressing the imbalances in the broader securitisation framework which hold the wider European securitisation market back; Ensuring a well-designed EuGBS which fully accommodates the characteristics of securitisation; and Pursuing a proportionate approach to sustainability-related disclosures under the EuGBS framework and more broadly; - ENDS -

The Association for Financial Markets in Europe (AFME) has today issued a comment in response to the UK Government’s Financial Sector Reforms, announced today in Edinburgh. Adam Farkas, Chief Executive of AFME, said: “AFME welcomes the UK Government’s proportionate and considered approach to reforming financial services sector policy in the UK, building on the longstanding dialogue between the official sector and industry. “AFME supports financial regulation that encourages growth and that is fit for purpose and proportionate for UK capital markets, while promoting openness and competitiveness. “AFME members are global wholesale banks that support European clients internationally, therefore, it is a priority to ensure the continuity of cross-border services and to avoid market fragmentation. In this respect, AFME advocates for the same policy approaches in both the UK and the EU.”

The Association for Financial Markets in Europe (AFME) has today issued a comment in response to the European Commission’s latest package of measures on Capital Markets Union. Adam Farkas, Chief Executive of AFME, said: “Today’s package of proposals is a welcome step towards progressing the Capital Markets Union further, which is a vital project for supporting European capital markets, particularly in light of recent economic and geopolitical pressures. “On the Listing Act proposal, an attractive environment for Initial Public Offerings (IPOs) and other capital raisings in public markets is vital to support innovative, fast-growing companies, as well as an expansion of Europe’s equity markets. A well-functioning IPO market is also important in the pre-IPO environment as it impacts on exit strategies and therefore the provision of risk capital. In order to allow companies to access capital effectively, policy makers should support measures that strengthen the competitiveness of EU markets in order to improve the ability of all types of companies to raise funds on European capital markets. “AFME welcomes the focus on promoting multiple voting right share structures. Subject to appropriate checks and balances, these structures have the potential to attract founder-led high-growth companies looking to list. Their promotion should however apply to all listing platforms and not be limited to SME Growth Markets”. “AFME looks forward to debating the proposals in the EU Listing Act, including those in relation to the Prospectus Regulation, Market Abuse Regulation and investment research. Features of the existing EU framework that are unclear, inconsistent, disproportionately burdensome on issuers and/or which fail to provide adequate reassurance to investors should be addressed in this review. The proposals should strike the right balance between the needs of issuers, investors and participants providing diverse services such as underwriting and market-making.” - ENDS -

A new report published today by the Association for Financial Markets in Europe (AFME) and Protiviti outlines four key barriers holding back the pace of Cloud adoption within the Financial Services sector. The report entitled “State of Cloud Adoption in Europe - Preparing the path for Cloud as a critical third-party solution” finds that while Cloud can clearly be an enabler for financial services innovation, some key barriers are currently making it harder for firms to adopt and fully leverage its potential. Fiona Willis, Associate Director of Technology and Operations, at AFME, said: “The benefits of Cloud technology for the growth of the financial services sector are clear, allowing financial institutions to deliver agile, scalable and resilient services to their clients. However, our report finds the rate of adoption of Cloud technology is currently being held back by overly complex and unharmonised regulation.” “AFME members believe it is essential that policymakers, in the EU and globally, do not inadvertently impact the continued adoption of Cloud services. We therefore make key recommendations to help ensure regulators and policymakers can work together to unlock the full potential of cloud opportunities for the financial services sector.” James Fox, Director, Enterprise Cloud at Protiviti, said: “Cloud technology is increasingly critical for financial institutions, creating a significant opportunity to increase productivity, flexibility and resilience in support of their digital transformation initiatives. Regulators are quite rightly taking steps to make sure that the application of Cloud technologies within financial services is properly regulated to avoid any potential risks or issues that could harm the global financial system. However, a careful balancing act needs to be struck between properly regulating Cloud technologies and not stifling innovation and competition within the financial services sector, and as our recent report shows, the current regulatory complexity is making it more difficult for financial institutions to adopt the Cloud.” The paper sets out four key challenges that financial institutions are currently experiencing, including: Concentration of Cloud Services:​Globally, 65% of Cloud services are provided by just three entities, whose dominance is raising concerns among financial regulators, highlighting the risk of concentration in the Cloud marketplace. Regulatory Complexity:Regulatory fragmentation, uncertainty and the time required for regulatory approvals is preventing financial institutions from innovating, slowing the pace of Cloud adoption. FIs are also subject to multiple different regulators that may ask for the same information in different formats and through different channels. Data Localisation:The forthcoming EUCS certification framework could have far-reaching negative implications if the proposals to achieve “immunity against third-country law” via EU control requirements are adopted. Management of Disruption in the Cloud:Several high-profile Cloud service outages have highlighted the need for greater visibility and confidence in Cloud providers’ abilities to predict, manage and communicate disruptions to their Cloud services. Regulators expect FIs to have primary responsibility for resisting threats to operational resilience, to guard against service disruptions and to recover from incidents. The paper provides 9 recommendations for policy makers in order to help address these challenges: Concentration of Services We urge policymakers to consider how CSPs could be encouraged to provide greater transparency on resiliency, dependency and security issues within cloud services, specifically greater visibility and analysis of dependencies between regions and the underlying control plane[1] within each CSP. We recommend that the adoption of multi-cloud strategies should remain at the discretion of individual FIs and should not be mandatory, as such a mandate could increase, rather than address, systemic concentration risk. Regulatory Complexity We request that authorities consider an approval model for deploying services to the cloud at a platform level or remove time requirements for notifications, in order to reduce delays in the approval process. We encourage greater co-ordination between the European Central Bank (ECB), European Supervisory Authorities (ESAs) and National Competent Authorities (NCAs) to ensure a consistent application of the outsourcing and Information and Communication Technologies (ICT) third-party registers to ensure minimum duplication for FIs and supervisors. Data Localisation We request that policymakers and regulators refrain from requiring localisation of data or cloud hosting solutions, as it challenges resilience, inhibits innovation, and increases operational complexity. Management of Disruption in the Cloud We encourage CSPs to proactively help FIs understand their tools, resources, and configuration settings and ensure that workloads and data running within the CSPs infrastructure are properly secured. In addition, CSPs should help FIs understand the Service Level Objectives (SLO) across each service provided and the resiliency and recovery metrics. We request that CSPs aid FIs in proactively architecting for greater resilience by providing dependency mapping between services and geographies, for example, that two different services share a single point of failure or how an outage that occurs in one region may affect the underlying CSP control plane. We encourage CSPs to provide greater transparency and detail of Root Cause Analysis (RCA) for incidents and outages within a CSP and create a library of previous RCAs, so that incident trends can be tracked, understood and better managed moving forward. We ask CSPs to provide sufficient education and notice to FIs for service updates that may impact FIs’ responsibilities and obligations in areas such as security or resilience. – Ends –

Following the publication of the Prudential Regulation Authority (PRA)’s consultation paper on the UK implementation of Basel 3.1 rules today, Caroline Liesegang, Head of Prudential Regulation and Research of the Association for Financial Markets in Europe (AFME), said: “Today’s consultation from the PRA is important as Basel 3.1 is the final step to implementing post-crisis reforms in the UK and is welcome by the banking industry. AFME will be responding on behalf of its members, which are the largest systemically important banks with active presence in Europe. “AFME is pleased to see the PRA has struck a good balance in its approach to implementing the international Basel standards. It is positive that the UK regulator has sought to ensure a coordinated approach through the proposal of a 1 January 2025 deadline, which is in line with the EU’s proposed timeline. It is also good to see that the proposal addresses certain UK specific issues in the implementation, a regional approach the EU has also taken to address its own requirements. “However, while there have been a number of positive adjustments, such as the treatment of unrated corporates, this has been offset by the removal of preferential treatment elsewhere in the framework, for example, in the SME supporting factor and the increase in capital requirements for trade finance.AFME believes that risk sensitivity and preferential treatment for certain asset types should be retained as they enable banks to support the real economy at a time when the financial, corporate and retail mortgage sectors are under enormous economic strain. “The combined effect of all these changes will need to be carefully assessed to ensure that the overall calibration of UK regulation is appropriate.” - ENDS -

The Association for Financial Markets in Europe (AFME) and EY have today published a new report “Into the Wild: Why Nature May be the Next Frontier for Capital Markets”. The report, published in the lead up to the COP15 UN Biodiversity Conference, explores how finance can be channelled to help address nature loss. With more than half of global GDP dependent on nature, nature capital is rising up the agenda for policy makers and the financial services sector. The global biodiversity financing gap has recently been estimated at USD 598-824 billion per annum. While growing investor demand is creating new opportunities to develop nature-related financing products, the report finds banks and other market participants are struggling to mainstream and scale nature finance products. Banks also face challenges in particular from a lack of available data and common metrics for nature and biodiversity. The report also provides an overview of the natural capital finance products currently in the market and showcases a number of case studies of innovative practices currently being used by AFME members. Oliver Moullin, Managing Director, Sustainable Finance at AFME said: “The reorientation of capital in support of nature is a critical and urgent priority. AFME members have been key drivers of innovation in developing the products and financing solutions to help address the biodiversity financing gap and harness investor demand. We need to build on this momentum and proceed at pace with the work underway to create a strong global nature reporting framework and develop clear metrics for the measurement of investments’ impact on nature and biodiversity. We hope that COP15 can catalyse progress and the public and private sectors can work together to maximise the capacity of private finance to support nature.” Gill Lofts, EY Global Financial Services Sustainable Finance Leader said: “The protection and restoration of nature is essential for future economic growth and development and should be a priority for governments and all economic actors, including the financial services sector. Without sustainable finance we cannot achieve a sustainable future. We need an effective post-2020 biodiversity framework, underpinned by a strong global nature reporting framework, consensus around measurable and meaningful metrics to define biodiversity impact, and the development of a currency for nature.” The report concludes by examining the current regulatory landscape and makes five key recommendations for policy developments that can help direct capital towards solutions to conserve and restore nature: Gathering and translation of nature-related data into decision-grade data for financial services; A strong global nature reporting framework; Agreement on how to define measurable, meaningful impact on biodiversity through metrics and key performance indicators (KPIs) Standardisation of product classifications; and Development of a currency for nature. The report provides a useful guide for those looking to understand the critical role for capital markets. Ahead of COP15, AFME hopes this paper will continue to stimulate dialogue and market initiatives to harness the full potential of capital markets to finance the protection and restoration of biodiversity. -ENDS -

The Association for Financial Markets in Europe (AFME) has today published a study, commissioned from Risk Control Limited (RCL), examining the impact on the European securitisation market of the introduction of the Standardised Approach (SA) Output Floor. This rule change forms one of the final elements of the Basel III set of reform measures and will affect how banks calculate their risk-weighted assets, the denominator in their capital ratio. The study finds the effect of this rule change, as currently proposed, will vary considerably across regulatory asset classes. Notably, the study shows securitisations of large corporates and SME loans are likely to be severely negatively impacted, making them scarcely feasible. At the same time, securitisations of consumer loans, including residential mortgages, auto loans and other consumer loans, may be boosted. Shaun Baddeley, Managing Director of Securitisation at AFME, said: “It is very concerning that securitisations of bank loans to SMEs and corporates are likely to be largely eliminated should the SA Output Floor be introduced in 2025 in the EU as part of the Basel reforms. The uncertainty created by its implementation may cause many issuers to immediately stop using significant risk transfer (SRT) as a tool to transfer risk and free up capital. This could hold back the tool’s potential to support the European economy at a time when it is under severe pressure from tightening monetary conditions. “We are therefore calling on policy makers to urgently review these rules to support bank lending to corporates and SMEs. To illustrate the importance of SRT transactions, last year in Europe, this tool freed up capital which could be used to support more than EUR 80 billion of lending, representing nearly 10% of SME lending in 2021. It therefore has an important role to play in lifting Europe out of recession and supporting Capital Markets Union objectives. “Our study also highlights the contradictory effects that this rule change will have, meaning that while securitisations of SMEs and corporate loans are unfairly penalised, securitisations of consumer loans will be boosted. This demonstrates that these rules are not soundly rooted in an understanding of the relative riskiness of different asset classes.” William Perraudin, Managing Director at Risk Control Limited, said: "We show that sub-sectors areaffected differently depending on a 'horse-race' between the effects of floors on the underlying assets and on the securitisationsthemselves. Securitisations of corporate loans in Europe will be more or less precluded under the new regime. This will occur just ata time when the coincidence of rising capital charges and economic downturn will make the safety valve of securitisation particularlyimportant. Such unintended consequences appear to be a general feature of the current securitisation regime. While problems maybe ameliorated by provisional adjustments, what is really needed is a review of central aspects of the approach at the Basel level." Among the key conclusions of the analysis are: Corporate securitisations, both for large corporates and SME portfolios, will be largely eliminated by the introduction of the SA Output Floor as currently envisaged. This could contribute to a significant reduction in the availability of bank funding to European firms. Existing transactions done for risk management purpose, especially corporate ones, are likely to fail the significant risk transfer (SRT) test applied by European supervisors and therefore will have to be terminated. Some of the negative effects of the SA Output Floors on existing transactions would be substantially mitigated if internal ratings-based (IRB) approach banks were required to evaluate SRT tests only at an IRBA level, even if the SA Output Floor is binding. The SA Output Floors regime will encourage greater securitisation activity in residential mortgage and other retail loan portfolios because the increase in capital for loans held on balance sheet will exceed that of securitised assets. These findings suggest that the implementation of the SA Output Floors will disfavour one asset class substantially while benefiting another asset class with no clear rationale based on policy priorities.This is a consequence of adopting regulatory rules that are not soundly rooted in an understanding of the relative riskiness of different asset classes. Overall, the analysis of the study reveals the significant mis-calibration of the SEC-IRBA and SEC-SA for mezzanine tranches and a misalignment of senior tranche risk weights in comparison to pool risk weights. It, therefore, contributes to the case for reconsidering the level of capital charges for such tranches. AFME suggests an immediate recalibration of the SA Output Floor is particularly urgent to mitigate the severe negative impact outlined. The Association strongly supports proposals by MEPs for a transitional arrangement, until a wider review of the framework is undertaken. This transitional measure is critical for the economic viability of synthetic on balance-sheet transactions, the main instrument used to share risk and redeploy capital into lending to SMEs, corporates and project finance, as they are the most severely impacted by this rule change. - ENDS -