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Banks, asset managers, exchanges and consultants have said uncertainty over the implementation of four Directives – the Alternative Investment Fund Managers Directive, the latest Capital Requirements Directive, the Markets in Financial Instruments Directive and the Foreign Account Tax Compliance Act – is damaging business.
Commenting on the regulatory bottleneck, Alix Prentice, financial services regulatory partner at law firm Taylor Wessing, said: “It is challenging for firms and their business models, particularly those who want to change and grow, when they are not sure if it will be prohibitively expensive from a regulatory point of view or indeed impossible. Firms are subject to two areas of real volatility and uncertainty: market and political. The hold-ups seem to be driven by political differences.”
European Member States last week failed to reach an agreement on key trading rules in MiFID, stoking fears the legislation may not come into force until well into 2016. MiFID II will fundamentally change the way securities are traded across Europe and will dramatically overhaul many firms’ business models.
A number of debt market bankers say they are frustrated by regulatory foot-dragging, as they wait for national regulators to clarify their standards on the new generation of hybrid capital. The European Union has settled the content of the fourth incarnation of the Capital Requirements Directive putting Basel III into law. But potential issuers are still waiting for more information about additional Tier-1 bonds, which sit just above common equity in the capital structure and must be written off or converted to equity upon breach of a capital trigger.
Issuers are also waiting for the European Banking Authority recommendations on temporary write-downs, which will allow banks to write the bonds up should they restore their capital ratio. One capital solutions banker said: “Issuers are waiting for all this to be settled before they bring new bonds because a straightforward writedown structure will be more expensive than a temporary one and many banks don’t want to go down the dilutive equity conversion route. Nothing’s going to happen before August or September.”
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