This paper published by The Association for Financial Markets in Europe (AFME)and Allen & Overy considers the implications of the UK’s withdrawal from the European Union on the continued eligibility of English law governed capital and debt instruments issued by EU27 banks to meet loss-absorbing capacity requirements.

The Association for Financial Markets in Europe (AFME) welcomes the efforts of the co-legislators to move ahead to the trilogue phase in the Risk Reduction Measures (RRM) package. This paper sets out our views on the resolution aspects of the proposals following the European Parliament’s Final Report, and the Council of the European Union’s General Approach. There are several key topics relevant to resolution within the package, including the implementation of the FSB Total Loss-Absorbing Capacity (TLAC) Standard, 2amendments to the Minimum Requirement for own funds and Eligible Liabilities (MREL), and other issues such as the provisions for a new pre-resolution moratorium tool.

The Association for Financial Markets in Europe (AFME) and EY has today published “The Scope and Evolution of Compliance”. The report considers the role of the compliance function within wholesale investment banks and the potential challenges and changes it faces in its structure and approach. It outlines the key considerations for banks’ compliance functions as they seek to adjust and enhance their roles in response to the changing nature of the business and regulatory expectations. To address these challenges, the report offers possible responses and discusses the optimum resource model for compliance: For example: There is an opportunity for compliance to transition from its traditional role into one that provides enhanced strategic advice to senior management. This includes increased oversight of 1st Line Control Function surveillance and testing as a 2nd Line Control Function, greater use of business data to analyse and provide insights to senior management on changing risks and controls, and a greater influence on the management of the regulatory risk framework as a whole. Compliance will become more data and technology dependent as budget challenges and operating effectiveness encourage innovation-driven transformation. But, people and human judgement remain important. There will continue to be significant debate about what the optimum resource model for compliance functions should be, given the challenges as well as the opportunities they face. We hope this report can make a useful contribution to those ongoing discussions.

Available in French, German, Italian and Spanish. This report tracks the progress to date of the European Commission’s flagship Capital Markets Union (CMU) project through seven Key Performance Indicators (KPIs). It is a joint publication with nine trade associations and international organisations representing global and European capital markets stakeholders. It is the first publication in what will be an annual series which will review developments in the CMU project and identify what further work needs to be done. The report also includes the first country-by-country comparison of individual EU Member State progress against the CMU’s objectives. Key findings include: The availability of pools of capital in Europe has shown encouraging improvements in most EU countries in recent years. The amount of household savings invested in capital markets instruments (i.e. equity shares, investment fund shares, bonds, insurance and pensions) has increased from 108.7% of GDP in 2012 to 118.2% of GDP in 2017. Europe continues to over rely on bank lending. European companies continue to over rely on bank lending, with 86% of their new funding in 2017 coming from banks and only 14% from capital markets. European capital markets are showing an encouraging trend towards greater intra-EU integration. Since the aftermath of the financial crisis after the repatriation of some market activities and funding to home countries. Our indicators show growing intra-EU activity between EU Member States in private equity, M&A transactions, debt issuance, and cross-border holdings of portfolio assets. Three years on from the launch of the Capital Markets Union Action Plan, and with the end of the current Commission approaching, this report provides a timely opportunity to review the progress that has been made to date on achieving the CMU’s vital aims.

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

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

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

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

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

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