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15 December 2015

116th Brussels for Breakfast

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Topics covered included Brexit, European Deposit Insurance Scheme, Green Paper on retail financial services, FinTech payments, Prospectus Directive Proposal, and progress of the Securitisation Proposal.

Hosted by the BBA and organised by the CSFI – with Graham Bishop and Wes Himes of Instinctif Partners.

The flow of detailed proposals has dropped off – a bit! So that gave time for some rather more 
philosophical reflections on the role of the banking system as a supplier of credit and the impact of “fin tech” on such core banking activities as payments. However, the Brexit risk remains the first 
item in the City – as it will for at least the next six months. Co-presenter - Wes - asked for a show of hands on who actually expects the UK to leave the EU. Out of the 65 people present, not a single hand went up. The City seems to know where its economic future lies – especially after the graphic warnings from Commissioner Hill (see my blog of 27 Nov).
He told an FT breakfast that Brexiteers have a “complete and fundamental misunderstanding of how the rules work and are misleading about the consequences….you cannot have your cake and eat it …” City of London Corporation research recently showed that financial services contributed £66bn to UK tax revenues in 2014/15 – 11% of the total. If this were diminished to any significant extent, it would be highly damaging for the UK. It underlined the economic (though not political) insignificance of the Prime Minister’s attempt to reduce `in work benefits’ claimed by EU migrants. They only cost £1.5 bn annually – 0.1% of GDP. Risking £66bn to save £1.5bn does not seem a sensible balance.
For the third pillar of banking union, the Commission proposed a euro-area wide insurance scheme for bank deposits (EDIS) and set out further measures to reduce remaining risks in the banking sector in parallel – a politically astute balance.  The EBF supports the completion of the Banking Union with the creation of a single European deposit insurance scheme as its third and final pillar, but wants to ensure that the EDIS will not lead to increases in overall contributions that banks make to deposit guarantee systems.  
Meanwhile, the second pillar will come into force on schedule on 1 January 2016 as a sufficient number of member states have ratified an intergovernmental agreement (IGA) on the transfer and mutualisation of contributions to a Single Resolution Fund. ECON published a report estimating the bridge financing needs of the Single Resolution Fund.  This paper provides estimates of the potential financing needs of the SRF, based on the euro area bank resolutions that actually occurred between 2007 and 2014. The authors find that the SRF would have been asked to put a total amount of about €72 billion into these failing banks.  
Council adopted updated rules on electronic payment services and the EPC published its proposal for the design of a pan-European instant credit transfer scheme. The EPC proposal covers the general features of the future SCT Inst scheme, which will be used for instant credit transfers in euro in SEPA countries. It is a major milestone in the development of instant payments in euro across Europe. 
The European Commission welcomed the agreement at record speed at the Council on a legislative proposal to relaunch EU securitisation markets. This constitutes a good basis for further discussions with the European Parliament. Insurance Europe is favourable to the Commission’s approach to reforming the regulations around securitisation through the STS definition. In common with most other voices in this debate, including PCS, it believes the proposed STS definition is broadly correct and workable.  
The Commission proposed an overhaul of prospectus rules to improve access to finance for companies and simplify information for investors. The proposed Regulation is a key action of the CMU Action Plan. SMEs in particular will find it easier to raise funding when issuing shares or debt. Companies already listed on public markets will also benefit when they want to list additional shares or issue corporate bonds. The plan was welcomed widely by a string of the key professional associations.

© Graham Bishop

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