Last Week In Review: A Financial Roundup
Monday
'Research enhanced': The trend turning Europe onto active ETFs
Active exchange-traded funds are still in their infancy in many parts of Europe but as they gain traction one segment seems to have caught the attention of many treasurers and finance professionals. ‘Research-enhanced ETFs’ are gaining momentum and showing promise as a leading ETF across Europe.
Blending the liquidity and transparency of ETFs with the alpha-generating potential of active management seems to have sparked intrigue.
Strategies from Fidelity and JP Morgan dominate this market, with BlackRock also recently launching similar products. Investors are intrigued due to these products' ability to blend index- and quant-driven active investing. They offer enhanced exposure through leveraging analysts' research, resulting in a balanced portfolio.
With a growing appetite for ETFs, these research-enhanced ETFs look to offer a middle ground between passive and active management at an attractive price point. Their success has prompted the launch of more open-ended funds in the same niche. Additionally, they align with the growing demand for sustainable investing, offering investors more choices and avenues for engagement with ESG issues.
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Tuesday
Bank of England tells payment firms to step up disruption mitigation plans
The Bank of England has mandated that UK payment service providers enhance their operational resilience by March 2025, aiming to mitigate disruptions like cyber attacks and IT failures.
This move follows incidents where customers faced account lockouts and payment failures due to IT glitches. The new standards include "impact tolerances," setting limits on disruption duration to safeguard customers and financial stability.
Sasha Mills, the BoE's Executive Director for Financial Market Infrastructure, emphasises the importance of confidence in financial services and calls for increased engagement from firms, participants, and the market. She highlights the need for FMIs to improve testing methods and develop robust remediation plans to address weaknesses.
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Wednesday
Britain rolls out post-Brexit plans for authorising EU investment funds
The UK has unveiled its plan for allowing EU investment funds to operate in the UK post-Brexit. The Overseas Funds Regime (OFR) will replace temporary permissions, streamlining authorization for non-UK funds.
The Finance Ministry emphasises that UK investors will still have access to EU funds with equivalent consumer protections. Long-term market access for EU funds was confirmed earlier without additional requirements. The FCA aims for a smooth recognition process, investing in efficient systems.
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Legislation to enact January's decision will be introduced, with a public consultation on sustainability labelling rules planned. Any new rules would be effective from the second half of 2025, with existing recognised funds considered.
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Thursday
UK heading towards a funding 'cliff edge', warns think-tank
The Institute for Government recommends that the winner of the UK general election initiate a one-year spending round and finish ahead of a December 2024 spending "cliff edge."
The report highlights unprecedented levels of government spending uncertainty, as the next election will coincide with the expiration of departmental budgets, a situation not seen in over 40 years.
Delaying spending plans beyond November could lead to significant instability, affecting services and projects. The Institute suggests conducting two spending reviews in the first year of the parliament: a one-year round to allocate budgets for 2025/26 and a comprehensive multi-year review.
The comprehensive review, completed by summer/autumn 2025, should align with government priorities for the remainder of the parliament. This proactive approach aims to provide urgently needed certainty and flexibility for crucial spending decisions.
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Friday
Three ECB Cuts Now More Likely in 2024, Stournaras Tells Liberal
The ECB will “most likely” reduce interest rates three times instead of four due to robust economic growth buoying inflation says Yannis Stournaras, an ECB policymaker.
Despite the ECB's announced intention to decrease borrowing costs from their current record highs starting in June, uncertainties loom regarding future decisions. Stournaras, a proponent of rate cuts, suggests that an economic rebound in the first quarter makes three cuts more probable.
Stournaras emphasised that if the current pace of economic growth persists, consumer price growth could slightly exceed March forecasts without endangering the 2% target by mid-2025.
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