As the adoption of Artificial Intelligence (AI) and Machine Learning (ML) in capital markets continues at pace, attention is increasingly being focused on how capital markets firms can demonstrate a responsible approach to their use of the technology. This white paper has been developed by AFME’s AI Task Force to consider how to approach transparency in AI/ML, which is a key factor in demonstrating and ensuring the safe and effective deployment of trustworthy AI/ML in capital markets. The paper suggests a technology-neutral, principles-based approach to transparency, built around the assumptions used in the development of AI/ML models and testing of those models, to meet stakeholder needs. In any use of AI/ML, transparency is important to a wide range of stakeholders, as it can demonstrate how an AI/ML model has been developed, how it will be used and monitored, and how it can stand up to scrutiny and challenge. This is crucial for building trust in the technology, both within a firm and with external stakeholders such as clients and regulators. This is the third in a series of white papers produced by AFME’s AI Task Force. The first paper considered the use-cases, benefits and risks of AI in capital markets, while the second paper explored ethical considerations. This third, more technical, white paper discusses the concept of transparency in AI/ML.

The Central Securities Depository Regulation (CSDR) is the latest step in establishing an EU-wide harmonised regulatory framework for financial market infrastructures and promoting safety and stability in financial markets. The regulation covers a wide range of requirements across its phased implementation timeline, the last of which is the Settlement Discipline Regime which comes into force in Sep 2020.

Following the extension of the article 50 period to 31 October 2019, banks are continuing to implement their contingency plans for a no-deal Brexit scenario in light of the ongoing political uncertainty. While a very substantial amount of work has already been undertaken to mitigate risks by both firms and regulators, a no-deal Brexit is likely to have a significant impact on the financial services sector and regulatory and operational challenges remain. We remain focused on addressing the regulatory and operational issues which arise from a no-deal Brexit scenario to avoid cliff edge effects that would significantly affect the financing of the economy and the orderly functioning of markets in the EU27 or the UK. A selection of our publications addressing these issues is included in the appendix. In this paper we take stock of no-deal risks in the financial services sector and highlight areas where further work is needed to mitigate risks of a no-deal scenario and minimise disruption to markets and clients.

Executive summary available inFrench,German,ItalianandSpanish. This paper aims to provide European decision-makers and other stakeholders with a concise overview of AFME’s priority objectives for the European Union in the area of bank prudential and resolution regulation. A broader overview of AFME’s priorities and key recommendations can be found in the accompanying publication “Finance for Europe – Building competitive, resilient and integrated financial markets. A financial services strategy for sustainable growth and competitiveness in 2019–2024”. Priority areas in banking prudential regulation for the new EU legislative cycle Completing the Banking Union The completion of the Banking Union remains a key priority to achieve a stronger monetary union. This includes considering the Banking Union as a single jurisdiction in terms of prudential requirements, achieving effective depositor protection and a solution for a European safe asset. Removing the fragmentation in European banking markets Cross-border banks need to be able to manage their capital and liquidity at a consolidated level and to achieve diversification and economies of scale. This will also help to address their lack of profitability and excess capacity. Together with Capital Markets Union this is a powerful way to share risks and to absorb economic shocks. Achieving an ambitious Capital Markets Union Capital Markets Union (CMU) can increase the diversity of funding sources, reduce the overreliance on banks, and provide the European economy with a ‘spare tyre’ during economic turmoil, when banks’ ability to lend is constrained. Internationally diversified investment portfolios can also help to smooth consumption and investment in case of an economic shock in a specific region. Ensuring openness to global capital markets It is vital for users of financial services – corporates, investors, government bodies - to ensure that global capital markets, including the EU, remain open and closely connected. Avoiding significant increases in capital requirements The EU implementation of the Basel agreement should not result in significant additional capital requirements, in line with the commitment made by global and EU regulators. Promoting global consistency Given the global nature of wholesale banking activities, it is important that global consistency is promoted in respect of the outcomes resulting from the implementation of the prudential standards. {}

Executive summary available inFrench,German,ItalianandSpanish. As the European Union gets ready to identify its strategic priorities and to plan its policies for the 2019-2024 legislative term, it is important to reflect on the various forces that are re-shaping many aspects of the economy and the policy landscape. These include an increasingly competitive global economic environment, the growth of disruptive technologies and new business models, as well as the drive to transition to a low-carbon economy. The United Kingdom’s prospective withdrawal from the EU will also be a factor in the near-term policy agenda. In this context, the EU should prioritise a growth strategy that focuses on promoting competitiveness, innovation and deeper integration while transitioning to a greener economy. A competitive, resilient and well-integrated financial system can play a central role in driving this strategy. AFME believes the EU should establish an ambitious agenda for the financial services sector in 2019-2024, which advances the following objectives. Supports European integration and financial stability by providing diversification, shock-absorption and risk sharing channels; Promotes the availability of diverse and efficient financing mechanisms for businesses of all sizes, with particular focus on funding for technological innovation and enterprises with high growth potential, through capital market ecosystems; Finances the transition to a more sustainable economy and helps to close the yearly investment gap of almost EUR 180 billion to achieve EU climate and energy targets by 2030; Provides EU citizens and organisations with a diversity of assets for investment and saving, contributing to wealth creation and the provision of retirement income to address the EU’s demographic challenge. In order to best attract both market liquidity and long-term investment, the EU’s financial markets regulatory framework must be continually evaluated as to whether it is sufficiently competitive and at the cutting edge of innovation and connectivity. {}

Executive Summary • In 2018 the AFME Industry Utilities Working Group published their first paper, Industry Utilities: APerspective for Capital Markets, discussing the potential future opportunities for utilities and examining the challenges which prevent utilities coming to market. • This second paper has been developed by the Working Group to provide sixteen recommendations to support financial institutions and platform providers who are actively considering, or in the process of, developing an industry utility. • The recommendations address many of the complexities identified in the first paper. They are intended to be applicable to all of the stakeholders involved in utilities projects, and cover the various solutions, and common utility operating models, being developed. • In summary, the recommendations highlight the importance of: - Ensuring that a utility is the right solution to meet existing needs and that upfrontand active commitment from sponsors is secured for the duration of the project; - Prioritising requirements for the interoperability of the proposed utility solution andplacing importance on the use, or creation, of industry minimum standards; -Defining and implementing a consistent governance model for the project that can beused and adapted once the utility is operational; - Delivering timely ‘minimal viable outcomes’ that can quickly demonstrate and buildconfidence in the project and long-term utility solution; and -Dedicating sufficient project investment, time and resources, to integration and thecultural change activities that will be required. • Whilst not exhaustive, the recommendations intend to test assumptions, build awareness and increase the success of utilities projects in capital markets. • AFME looks forward to discussing the recommendations with all industry participants who are engaged in, or planning, a utilities project.

The benefits of financial integrationin the EU are well known and include making both the financial system, and the widereconomy, more resilient, which in turn supports growth. In this short explainer document, AFME highlights the vital role that Banking Union and Capital Markets Union can play in promoting greater financial integration. The document also outlines why these important initiatives should be thought about and promoted together, as they play overlapping and complementary rolesin strengthening the EU financial system. Find out more in our video:

The Global Financial Markets Association (GFMA) and PwC have today 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 Global 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. This report builds on the AFME report published in 2018, to now include perspectives from the US and Asia. Among the key findingsfrom the report are: Technology is one of the most powerful levers banks have to address potential disruption, tackle existing industry challenges and deliver future opportunities. While an average of 90% of survey respondents (US 90%, Asia 83%, Europe 95%) identified the opportunity for cost reduction as the most important driver for the adoption of new technologies, only 27% on average (US 27%, Asia 30%, Europe 25%) felt that the current investment allocated by banks to this strategic change was sufficient. 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. The Global Financial Markets Association (GFMA) brings together three of the world’s leading financial trade associations, The Association for FinancialMarkets in Europe (AFME), the Asia Securities Industry and Financial Markets Association (ASIFMA) andthe Securities Industry and Financial Markets Association (SIFMA).

Executive Summary available in French. The Global Financial Markets Association and New Financial have today published The New Financial Global Capital Markets Growth Index. The report examines the development of capital markets across the globe and demonstrates their importance in supporting sustainable economic growth. It highlights how capital markets can help to diversify funding sources for corporates, increase the capacity of economies to absorb economic shocks and fund more sustainable pension systems. The research also identifies the potential for growth in capital markets and pools of capital around the world. Our goal is for this report to provide a comprehensive and fact-based analysis to assist policymakers’ and market participants in better identifying development gaps and growth opportunities and how to address them, as well as better understanding how deeper capitalmarkets can benefiteconomies. The Global Financial Markets Association (GFMA) represents the common interests of the world's leading financial and capital market participants, and speaks for the industry on the most important global market issues. The Global Financial Markets Association (GFMA) brings together three of the world’s leading financial trade associations, The Association for Financial Markets in Europe (AFME) in London, Brussels and Frankfurt, the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong and the Securities Industry and Financial Markets Association (SIFMA) in New York and Washington.

This white paper has been developed by the Task Force to explore the ethical considerations of AI. We have grouped the ethical considerations into two themes: • Data Input and Design (e.g. AI acting on data set bias), and • Understanding and Control (e.g. a lack of transparency of AI related decisions). We have made recommendations for how firms can address the ethical considerations of these two themes. In summary firms should: • Apply a critical view of the data sets used for each AI application and perform specific quality control checks from design through to operation; • Train design teams and individuals to be aware of, and mitigate, biases within the function and design of individual AI applications; • Assess what level of ‘explainability’ is necessary for each AI application and take this into account in its design; and • Ensure that all AI applications are subject to a suitable control framework and audit process throughout their lifecycle. AI is a fast-developing technology which is already being applied to specific uses within firms, as well as moving towards larger-scale deployments. Continuing discussions and information sharing on the ethical considerations of AI will be critical for the development of the capability within capital markets.