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.
Claire Cummings
020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com
UK drops challenge to EU cap on bonuses
The UK government has withdrawn its legal challenge to EU legislation that caps the level of bankers' bonuses. George Osborne said he had recognised the challenge was "now unlikely to succeed". The move comes after ECJ Advocate General Niilo Jääskinen gave an opinion that the EU legislation limiting the ratio was valid and rejected all the UK's legal and technical arguments against the plan. The final ruling was not expected until next year. The cap restricts bonuses to 100% of banker's pay or 200% with shareholder approval and is designed to reduce incentives for bankers to take excessive risks. HM Treasury had argued that the cap would drive talent out of Europe and push up basic pay and banks’ costs, making it harder for banks to trim costs in lean years. Mr Jääskinen said that “Fixing the ratio of variable remuneration to basic salaries does not equate to a 'cap on bankers bonuses', or fixing the level of pay, because there is no limit imposed on the basic salaries that the bonuses are pegged against.”
Juncker to unveil eurozone investment plan
European Commission chief Jean-Claude Juncker is due to unveil his €300 billion investment plan next week to boost jobs and growth in the EU's flagging economy. The plan is the centrepiece of a wide-ranging reform agenda by Mr Juncker, but it has been overshadowed by allegations of huge tax breaks during his term as premier in Luxembourg. The French Economy Minister has said that the plan should include as much real money as possible, but reports have

2. indicated that while there will be some new cash, such as the €10 billion euros recently pledged by Germany and the freeing up of funds by the European Investment Bank, much of the €300 billion consists of creative accounting, using projected investments resulting from already existing EU funds.
G20 Brisbane summit declaration on financial services issues
The G20 leaders have published a declaration on the financial services sector and related reform issues following the G20 summit held in Brisbane last weekend. Among other things: (i) the G20 believes it has delivered key aspects of the core commitments it made in response to the financial crisis and that its reforms to improve banks' capital and liquidity positions and to make derivatives markets safer will reduce risks in the financial system; (ii) the G20 welcomes the Financial Stability Board's (FSB) proposal requiring global systemically important banks to hold additional loss absorbing capacity that will protect taxpayers if these banks fail; (iii) progress has been made in delivering the shadow banking framework and the G20 endorsed an updated roadmap for further work; (iv) regulatory authorities are called upon to make further concrete progress in swiftly implementing the agreed G20 derivatives reforms; and (v) progress has been made to strengthen the orderliness and predictability of the sovereign restructuring process. The G20 warns that critical work remains to build a stronger, more resilient financial system. The next task is to finalise elements of policy framework and fully implement agreed financial regulatory reforms, while remaining alert to new risks.
ESMA Chair speech about future supervisory developments
ESMA Chair, Steven Maijoor, has given a speech this week on the response of regulation and supervision to the financial crisis and the implementation of the new regulatory framework. Mr Maijoor also speaks about the outlook on current and future risks and future supervisory developments. Among other things, Mr Maijoor commented that: (i) the new role for securities regulators to consider financial stability will benefit from unprecedented data collection and exchange, particularly upon implementation of MiFID II; (ii) ESMA will soon publish the results of a thematic review into the monitoring of structured finance ratings by CRAs currencies; (iii) further progress is required in respect of information on securities financing transactions (SFTs), where ESMA has identified data gaps; (iv) central counterparties (CCPs) are becoming increasingly systemically relevant, as EMIR will increase risk concentration within CCPs, and so the principal forthcoming regulatory challenge will be an appropriate recovery and resolution framework for CCPs; and (v) ESMA is conducting a research project to identify systemically relevant hedge funds based on their capability to drive market trends, based on stability risks embedded in certain activities and practices in asset management, such as the use of leverage or SFTs.

3. ESMA consulting on improvements to trade reporting under EMIR
ESMA has issued a consultation paper on EMIR trade reporting to improve the data it is receiving, as it has noted several shortcomings and limitations since reporting began in February. The consultation paper introduces three categories of changes to the current technical standards, namely, clarifications of data fields and their descriptions, adaptations of existing fields and introductions of new fields and values to reflect market practice or other necessary regulatory requirements. According to ESMA, EMIR data is used to improve transparency in the derivatives markets and to identify risks to financial stability, as well as being used as part of the broader economic analysis under the regulator’s financial stability mandate. The consultation closes on 13 February 2015.
IOSCO consultation on post-trade transparency in CDS market
IOSCO is consulting on post-trade transparency in the credit default swaps market. IOSCO has identified certain potential benefits and costs to mandatory post-trade transparency, as set out in Part VI of the report. Having considered these potential costs and benefits, IOSCO's preliminary conclusion, outlined in Part VII of the report, is that greater post-trade transparency in the CDS market, including making the price and volume of individual transactions publicly available, would be valuable to market participants and other market observers. IOSCO encourages each of its members to take measures to enhance post-trade transparency in the CDS market in their jurisdiction, although it recognises that each member jurisdiction is best placed to judge the appropriate time and manner for enhancing post-trade transparency for CDS that trade in its respective market. Comments on the report are invited by 15 February 2015.
Alternatives to LIBOR under discussion
Following international investigations into the manipulation of LIBOR, which so far has netted fines of more than $6 billion, the Federal Reserve has met a number of lenders to discuss alternatives to LIBOR. Those lenders involved include Barclays, JPMorgan Chase, Goldmans and Bank of America, in addition to the Japanese and U.K. central banks. The discussion is aimed at developing reference rates based on risk-free or near risk-free rates, following recommendations made by the Financial Stability Board in its July report. In the meantime, ICE Benchmark Administration Limited (IBA) has published its ICE LIBOR Error Policy, which sets out its approach to handling errors in fixing ICE LIBOR rates identified after their publication.

4. Bitcoin’s conversion into cash
SpectroCoin, the UK and Lithuania-based bitcoin services provider, is now allowing its customers to convert bitcoin into cash in 25 countries across Europe and Central Asia. This is in addition to its existing merchant processing, brokerage and wallet offerings. Bitcoin-to-cash withdrawals are now available in nations such as Bulgaria, Greece, Hungary, Poland, Portugal and Spain, along with Switzerland, Turkey and Ukraine and other former Soviet countries. While SpectroCoin's bitcoin-to-cash withdrawals are not cheap when compared to bitcoin transactions, it is suggested that they are likely to find an audience with consumers in parts of the world where moving money still costs a premium. Competition in the European market has heated up recently following the entrance of US bitcoin service providers BitPay and Coinbase.
Cummings
Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com 21 November 2014
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