1. Welcome to Euro Shorts, a short briefing on some of the week’s developments in
the financial services industry in Europe.
If you would like to discuss any of the points we raise below, please contact me or
one of our other lawyers.
020 7585 1406
Available on CLTV from Monday: 'EMIR - THE BARE FACTS'
A short video in which Dominique White discusses the bare facts about
EMIR will be available on CLTV as from Monday at
ESMA updates AIFMD MoU table
ESMA has updated its table showing the state of play of MoUs signed by
national supervisors with non-EU regulators worldwide. The AIFMD MoUs
are co-operation agreements that allow the exchange of information between
EU and non-EU supervisors, enabling non-EU fund managers to market
alternative funds within the EU. According to the table, the FCA has entered
into MoUs with all non-EU regulators listed in the table.
Carney adds view on bankers’ bonuses
Mark Carney appears to have stepped into the row about bankers’ bonuses
with a demand that a large chunk of the pay packages for senior staff should
be deferred "for a very long time". Mr Carney said that a change in
compensation structures was needed so that banks could see whether
employees had taken undue risks or behaved badly. This followed news that
Barclays was paying bigger bonuses despite its plans to lay off staff. Mr
2. Carney said the Bank of England now had the powers to step in and limit
bonus payments if a bank was deemed to have inadequate levels of capital.
Meanwhile, the text of the UK’s challenge to the ECJ relating to the cap on
bankers’ bonuses has been published in the OJ; the UK is seeking the
annulment of a number of remuneration-related provisions in the CRD IV.
House of Lords EU report
The House of Lords EU sub-committee has published its 8th report
regarding implications for the UK in respect of EU economic and monetary
union. Points of interest include (i) the importance of the EU banking union
and a warning that the UK’s influence may diminish as a result of its nonparticipation, (ii) the view that the single resolution mechanism for dealing
with failing banks is not fit for purpose, (iii) that financial stability can only
be achieved through a common deposit guarantee scheme, although these
plans are "dead in the water" and (iv) that without a workable banking union
the vicious circle linking bank and sovereign debt will not be broken.
FX benchmark probe adding to woes
According to reports, the widening probe of the FX markets is adding to the
difficulties faced by an industry already under pressure to reduce costs, as
computer platforms replace human traders. It is believed that electronic
dealing will increase to 76% within five years. The investigation of alleged
manipulation is also reducing the number of spot traders at several firms; at
least 21 traders have been fired or suspended as a result of the probe and
some are leaving of their own volition. Regulators are helping push more
trading to electronic platforms by making some transactions more expensive
for banks. The latest rules from BCBS will make FX derivatives less
attractive by imposing charges for holding positions and products that are
not cleared through exchanges.
The market is waiting for a final text for MiFID II to emerge and in the
meantime, a group of brokers, fund managers and stock exchanges are
uniting to harmonise input to respond to forthcoming ESMA consultations.
The group, which held its first meeting in early February, comprises
executives from Barings, Deutsche, BoAML, Morgan Stanley, Nasdaq
OMX, Axa and Six Swiss Exchange. Despite previous disagreements on a
3. number of key issues between different industry participants, signs of
greater co-operation have recently appeared; during the final negotiations, a
number of firms (including LSE, AFME, Blackrock and Fidelity)
collaborated to send a letter to EU legislators in a last-ditch effort to
influence some of the MiFID II rules.
Financial transaction tax update
As political support for the FTT among the 11 Eurozone countries has begun
to wane, EU officials have been considering proposals to soften the tax,
namely a small charge on share deals only and slow progression to full
implementation. In the original blueprint, the tax on shares was proposed at
0.1%, but this has been reduced to 0.01%. This approach appears to have the
support of Germany, who believe that a phased introduction would be
preferable to abandoning it, suggesting that it could apply to shares first and
derivatives later. The French President has since said that France and
Germany share the same approach towards derivatives and a diluted FTT,
although he failed to elaborate on this. The two countries are committed to
agreeing a deal by late May, although the Austrian finance minister has said
that he did not expect the tax before 2016.
EU law on benchmarks faces long delay
The European Parliament was due to vote on a draft law regulating
benchmarks such as Libor next week, but according to reports it will almost
certainly be postponed. This is due to a request by centre-left lawmakers that
a study of the costs and benefits is carried out, as well as a legal opinion on
the role of ESMA. Under the draft law, critical and major benchmarks are
defined so as to encompass Libor, but ESMA would determine whether
many other market benchmarks, such as those used in oil, commodity and
stock markets, come under the EU rules. It is believed that the delay may be
tactical in the hope of getting a stricter set of rules in the next parliament.
Mansion tax edging closer?
The Bank of England has said that it is ready to use mortgage rates and
lending rates to keep the UK housing market in check. However, these
measures are ineffective in London because foreign buyers do not rely on
loans and this is one of the reasons why the Liberal Democrats and Labour
support a mansion tax. The proposed tax would mean an annual charge of
4. 1% on the value of a house worth over £2 million. The Conservatives are
opposed to the tax, with the Mayor of London criticising the idea as
‘absurd’, saying that it would ‘trap people who are cash poor’.
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21 February 2014