news & views of the week….

Week ending 3rd December 2021 Here is a summary of some key topics that have been in the news this week that might be of interest to those in the funding & financing markets and beyond. The focus continues in the areas of financial stability, sustainable finance as well as the continuation of the intersection of finance and technological advancements....

This week's highlights include the CPMI and IOSCO call for comments on direct access models to central clearing and portability; ICMA issues latest European repo market survey showing outstandings of EUR 8,726 billion at half-year; ESG feature article by Virginia Furness, Capital Monitor’s Sustainable banking editor on how ING Bank aligned 45% of its lending book to net-zero; the Federal Reserve Bank of New York launches the New York Innovation Center to advance a strategic partnership with the Bank for International Settlements Innovation Hub; statement by CFTC Commissioner Dawn Stump Regarding Recent Joint Statement by the OCC, Federal Reserve & FDIC on Crypto Assets; the CSSF guidance on virtual assets for Alternative Investment Funds; and the European Banking Federation's latest contribution to the debate on a Central Bank Digital Currency by exploring the impact of a Digital Euro....

 CPMI – ISOCO Press release: Call for comments on access to central clearing and portability  The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions invited comments on their new joint consultative report A discussion paper on client clearing: access and portability. This report aims to increase the common understanding of new access models, which enable clients to directly access CCP services, and effective porting, or transferring, practices for their positions. It also seeks to identify potential issues for follow-up work. The client clearing process facilitates access to CCPs, particularly for firms – known as 'clients' – that are not direct participants in a CCP and must rely on intermediaries to indirectly clear their trades. Since some entities cannot, or choose not to, directly participate in a CCP, improving access to client clearing is critical to the success of the G20's objective to have all standardised OTC derivatives contracts cleared through CCPs. Against this background, the report considers the potential benefits and challenges – particularly risk management - of the new access models developed by CCPs. At present, if a CCP member defaults, its clients' accounts need to be transferred to another CCP member or liquidated in a short time frame. Since forced liquidation is undesirable, the report identifies effective ways to support successful porting in this event….

The European repo market in 2021 – ICMA publishes survey showing outstandings of EUR 8,726 billion at half year The European Repo and Collateral Council of the International Capital Market Association released the results of its 41st semi-annual survey of the European repo market. The survey, which calculated the amount of repo business outstanding on 9 June 2021, from the returns of 59 financial institutions sets the baseline figure for European market size at a record high of EUR 8,726 billion up by 5.3% from EUR 8,285 billion in the December 2020 survey. The increase was driven by new issuance by many governments, which was up in both gross and net terms compared to the second half of 2020. Higher issuance was reflected in increased secondary cash bond market turnover in several countries, feeding into the repo market. Increased repo trading also reflected heavy short selling in anticipation of possible interest rate rises in the UK and a start to the ‘tapering’ of QE in the eurozone. Key findings: Increased share of GBP in the survey sample in line with the growth of repos of UK government securities, which now provide the largest share of European repo market collateral; Reduced role of German government securities as collateral, attributed to scarcity created by asset purchases by the Eurosystem and friction in the official securities lending programme. Scarcity of many eurozone government securities means that turnover in the repo market is driven largely by the search for specific securities; Share of securities issued by EU institutions being used as collateral stands at just 0.3% of the survey total but this is equivalent to 8% of the total EUR 259 billion outstanding at the time of the survey, indicating that the repo market has been playing a significant role in the distribution of these securities; The value of automated D2C trading electronic repo trading continued to grow strongly reflecting the continued impact of working from home; Tri-party repo continues to be crowded out by central bank liquidity….

How ING aligned 45% of its lending book to net zero - Capital Monitor Banks globally are grappling with the challenge of decarbonising their lending portfolios. Dutch lender ING has devised sector pathways for the nine most emissions-heavy sectors in its loan book – here’s how it did so. ING now has carbon emission reduction targets covering almost half (45%) of its €600bn lending portfolio, including 70% of its mortgage book, and is on track to align its global lending portfolio with net zero by 2050 or before. That puts it well ahead of many of its peers, according to Capital Monitor analysis….

New York Fed Launches the New York Innovation Center to Support Financial Technology Innovation in Central Banking The Federal Reserve Bank of New York launched the New York Innovation Center (NYIC), to advance a strategic partnership with the Bank for International Settlements Innovation Hub. As part of the New York Fed, the NYIC is collaborating with the Federal Reserve System, the BIS Innovation Hub, and public and private sector experts to validate, design, build, and launch new financial technology products and services for the central bank community. In his opening remarks at the event, Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, stated ‘’the partnership will support our analysis of digital currencies-including central bank digital currencies; help to improve our current payment system-with a particular focus on making cross-border payments faster and less expensive; and it will provide new tools to aid our supervision of the financial system.’’ The NYIC works alongside the BIS Innovation Hub in pursuit of common goals. It aims to identify and develop insights on critical trends in financial technology relevant to central banks; explore the development of public goods to enhance the functioning of the global financial system; and advance and support expertise in the area of central bank innovation. This collaborative relationship leverages best practices, research, and subject matter expertise to support innovation in central banking. To inform its activities, the NYIC will focus on five opportunity areas: Supervisory and Regulatory Technology, Financial Market Infrastructures, Future of Money, Open Finance, and Climate Risk. The NYIC will develop opportunities from concept to in-market solution. This work will be based on the venture development process, drawing on principles from entrepreneurship, venture capital, and corporate innovation to produce high-impact solutions….

CFTC: Statement by Commissioner Dawn Stump Regarding Recent Joint Statement by the OCC, Federal Reserve & FDIC on Crypto Assets ''I have encouraged all regulators to provide clearer descriptions of their existing authorities to participants and the public. Only from that point can we determine whether gaps exist, and properly evaluate the need for any new laws and regulations. Otherwise, we risk stifling innovation due to poorly understood objectives and uncoordinated responses. I therefore applaud the recent joint statement issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency on crypto-asset policies. I am pleased that these federal banking regulators have joined me in an effort to provide greater clarity around the impact of existing laws and regulations on certain crypto-asset activity. Clearly outlining the application of various existing requirements is foundational to advancing proper oversight of these products and their various utilities. As digital assets play a larger role in our financial system and the economy on a whole, those who invest or engage in activities relating to such assets, as well as the general public, are entitled to clarity as to how this new financial asset class is regulated in the United States. Until we remedy the current confusion about the application of federal and state regulators’ existing legal authorities with respect to digital assets, we cannot have an honest conversation about whether any agency needs new authorities. Before considering any overhaul of our regulatory structure as it relates to digital assets (and to avoid regulating these assets through the exercise of enforcement authority), let’s get the facts straight about our current system''….

CSSF guidance on virtual assets – CSSF As stated in its Communication dated 8 February 2021, the Luxembourg regulator, Commission de Surveillance du Secteur Financier, embraces the challenges raised by financial innovation such as virtual assets. As part of its mission, the CSSF is committed to promote an open, technology neutral and prudent risk-based regulatory approach. Virtual assets have taken a multitude of different forms, have seen an exponential growth over the last few years and have generated a strong interest as a potential new asset class for professionals, as well as investors. The new and evolving sector around virtual assets raises numerous questions from professionals under the supervision of the CSSF and professional associations as to the opportunities and concrete possibilities to engage in activities involving virtual assets in the broadest sense of the term. Many of these questions notably concern investments in virtual assets by investment funds, direct investments (as opposed to indirect investments using derivative instruments) in virtual assets or depository duties in the context of virtual assets. The CSSF publishes a guidance, composed of the present communication and FAQs that will be regularly updated, with the aim to provide professionals with concise answers to the main practical issues they are facing. Virtual assets may indeed present potential benefits for professionals as they may constitute an alternative to diversify their portfolios with a variety of additional types of assets. The very large diversity of virtual assets ranges indeed from digital representations of traditional assets with a simple return/risks rationale to more complex representations of rights that are more difficult to assess. Although all tokens constitute a digital representation of value, that can be digitally traded, or transferred, and are provided by the same technology using DLT and cryptography, they also come with a variety of rights (non-exhaustive list). The annexed FAQs will therefore for ease of reference mention for each question the type of professional and type of virtual asset that is targeted….

DIGITAL EURO - EBF The European Banking Federation's latest contribution to the debate on a Central Bank Digital Euro explores the impact a Digital Euro will have on EU Single Market for payments and what crucial aspects must be considered in its design. Banks and the ECB need to explore together the needs to be addressed by a digital euro and its design to ensure financial sovereignty for Europe and added value for its citizens. To explain its views on the digital euro, the EBF issued 3 papers on the topics: EBF paper #1: Strategic considerations; EBF paper #2: Impact on bank funding; and EBF paper #3: How does a digital euro fit the payments landscape? Digital transformation is a reality in payments: competitive pan-European payment solutions emerge, as do private global stablecoin initiatives and increased role of BigTech. Only by working closely together, authorities and banks can successfully harness this transforming environment….

Closing thoughts....

I am sure this brief collection of topics doesn’t reflect everything you are working on but I hope it reflects some of the things you should be interested in….and I hope you find it of use!

Until the next time, I would be pleased to receive your views on any areas of mutual interest.