Hosted by the BBA and organised by the CSFI – with Graham Bishop and Bob Penn (Allen and Overy) and Raoul Ruparel (Open Europe). Main topics included: Grexit, ECJ judgement on ECB/CCP, Brexit, CMU, MiFID and IFRS.
“Greece” has loomed over these discussions for some years as it had such potential to devastate the financial system in 2010/12. Does it have the same power now? Probably not. Eurogroup is still waiting for the promised details of the government’s policies and its chairman Dijsselbloem told the FT how `the deal’ actually happened. He emphasised the role of the bank run in bringing the new government to an appropriate level of understanding about how financial systems actually work. It is the longer term deposits of the Greek banks that are being run off at maturity so the term structure of its liabilities is now very short – thus fragile. Hence the risk of `Graccident’. Would Grexit be the much-feared catastrophe? For Greece, Yes. For the rest of the eurozone, would any other state wish to go even close to the terrible brink that Greece would then have gone over?
UK v ECB on CCPs at the ECJ: raising the risk of Brexit?
“The General Court annuls the Eurosystem Oversight Policy Framework … as it does not have the competence necessary to impose such a requirement on central counterparties involved in the clearing of securities..." The ECJ decision avoided the main issue of location of CCPs but could pit the UK directly against the Euro area – the worst possible outcome. This could happen if the ECB concludes that it has to have the power to oversee payments flows from securities activities and obtains a change in its Statute by a QMV of the euro area that directly outvotes the UK - should it choose to oppose the move.
A report from Open Europe on the impact of Brexit on exporters concluded there is a high likelihood that Britain could negotiate preferential trade deals covering manufactured goods, including cars, pharmaceuticals, machinery and food and beverages. But financial services would be hit hardest by Brexit. However, Juncker says EU needs Britain, but can't change basic treaty "I'm in favour of a fair deal for Britain. I can't believe in a European Union without Britain,"
Commissioner Hill emphasised the role financial markets can play in growth and jobs but argued that Capital Markets Union will not be created through legislation, but with the market’s help to deliver solutions. The ECB’s, Cœuré asked the question: What is the goal of the Capital Markets Union? His answers included that "Capital markets are starting again to show some signs of de-fragmentation. Looking forward, the objective of CMU should be to support qualitative integration, rather than quantitative convergence." But he emphasised that institutional reform would be needed.
The fallout from both MiFID itself and the MiFID II consultation continues apace. ESMA published a peer review on best execution under MiFID and found that the level of implementation of best execution provisions, as well as the level of convergence of supervisory practices by NCAs, is relatively low. Shrinking liquidity topped financial market concerns in a Bank of England review as concern is growing among banks and investment funds that heavier regulation has led to a number of key financial markets becoming too thin to soak up sharp price swings or bouts of volatility, laying the groundwork for another financial crisis. Due to its complexity, ICMA considers the only true way to calibrate liquidity is daily (trading) behaviour. Any other methodology will generate a high proportion of false liquidity. The Tabb Forum warned that the transparency resulting from unbundling research and execution may benefit the industry in the long term, but changing the payment-for-research structure will guarantee continued consolidation of the asset management industry.
IFRS – spreading far and wide, updates for insurance and pension funds
The IASB summarised which countries are making IFRS obligatory, authorised or prohibited as of the tenth anniversary of the application of IFRS in Europe. This is a remarkable success story for the EU’s role as 96% of states accept IFRS. However, improvements to accounting for insurance contracts have taken longer than planned - but the IASB is nearly there. We discussed the implications for significant discrepancies between Solvency II capital adequacy and that reported to shareholders.
Full webinar Brussels for Brunch March 2015
© Graham Bishop
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