The next AMIC conference will take place on 27 November in London and will be hosted by BlackRock. The conference will feature panel discussions led by industry practitioners on the development of the STS Securitisation market, the pension gap, PEPP and the effect of negative interest rates and a discussion on the possibility of an EU Ecolabel for funds. All market participants are welcome to attend for free however registration in advance is essential.
The European Insurance and Occupational Pensions Authority (EIOPA) has published its updated Risk Dashboard based on the second quarter 2019 Solvency II data.
The results show that the risk exposures of the European insurance sector remained overall stable compared to July. Macro and market risks continue at a high level. Volatility of the largest asset class – bonds – increased. Credit risks continue at a medium level, with somewhat lower Credit Default Swaps (CDS) spreads for most bond segments and broadly stable credit quality of asset portfolios. Nonetheless, signs of potential risk mispricing prevail. Market perceptions were marked by an underperformance of insurers' stocks compared to overall equity markets, whereas no change was observed in insurers' external ratings.
The Single Resolution Board (SRB) has published its 2020 Work Programme which sets out its priorities and core tasks for the year ahead.
The SRB’s 2020 work programme is an ambitious roadmap towards strengthening the resolvability of SRB entities and less significant institutions, fostering a robust resolution framework, carrying out effective crisis management, building up further the single resolution fund (from 33 billion in 2019 to around 41 billion next year) and establishing a lean and efficient organisation.
A focus for the year ahead will be on ensuring that the SRB’s internal policies, resolution plans and minimum requirements for own funds and eligible liabilities (MREL) decisions reflect the requirements of the new banking package.
The European Central Bank (ECB) has published a paper which focuses on whether leverage is driving procyclical investor flows and which assess investor behaviour in UCITS bond funds.
The article shows that investors in leveraged funds react more strongly to negative fund performance than investors in unleveraged funds, suggesting greater outflows for leveraged funds during these periods. In light of this, it says that leverage in mutual funds thereby adds to procyclicality and can amplify fragilities in the sector.
The paper concludes that while the UCITS framework has contributed to the growth of the investment fund sector, possible regulatory shortcomings regarding the use of leverage may need to be further addressed.
Speech by Mr Claudio Borio, Head of the Monetary and Economic Department of the Bank for International Settlements (BIS), on vulnerabilities in the international monetary and financial system.
In his speech, he mentions the real vulnerabilities are with gross capital flows, but then mentions that corners to watch include the dollar and the asset management industry. He argues that the asset management industry is likely to play a substantially bigger role in the next episode of financial stress than in the past.
The European Central Bank (ECB) has published a staff working paper, Investment Funds Under Stress, in which the authors present a model for stress testing investment funds based on a broad worldwide sample of primary open-end equity and bond funds.
First, they employ a Bayesian technique to project the impact of macro-ﬁnancial scenarios on country-level portfolio ﬂows worldwide that are constructed from fund-level asset holdings.
Second, from these projected country level ﬂows, they model the scenarios’ repercussions on individual funds along a three year horizon. They further decompose portfolio ﬂows, disentangling the speciﬁc contributions of transactions, valuation and foreign exchange effects.
Overall, their results indicate that the impact of a global adverse macro-ﬁnancial scenario leads to a median depletion in AUM of 24% and 5%, for euro area-domiciled equity and bond funds respectively, largely driven by valuation effects. The authors observe that the scenario and results both present similarities to the global ﬁnancial crisis. They use historical information on fund liquidations to estimate a threshold for a drop in AUM that signals a high likelihood of a forthcoming liquidation. Based on this, they estimate that 5.8% and 0.5% of euro area-domiciled equity and bond funds respectively could go into liquidation. They propose that such empirical thresholds can be useful for the implementation of prudential policy tools, such as redemption gates.
The Working Group on Sterling Risk Free Reference Rates has issued its monthly Newsletter for October 2019.
Recent developments highlighted in the newsletter include:
-The Regulatory Dependencies task force letters to UK regulators and European authorities;
-The Financial Policy Committee record reiterating there is no justification for firms to increase exposures to Libor;
-Completion of the first Libor-linked loan conversion; and
-ISDA’s anonymised summary of responses to its May Pre-Cessation Consultation.
The Organisation for Economic Co-operation and Development (OECD) has published a paper on Pensions Markets in Focus. The paper provides an overview of the funded and private components of pension systems in 88 jurisdictions and outlines latest developments in the markets worldwide. It exhibits an extensive range of indicators relevant to funded and private pension arrangements, harmonised and standardised across jurisdictions. It monitors the key financial aspects of these arrangements, such as the amount of accumulated assets, the way these assets are invested and their investment performance, both over the past year and over the longer term. The report also examines the proportion of the population covered by pension plans, the amount of contributions paid into these plans and the benefits that members receive at retirement.
Speech by Nausicaa Delfas, Executive Director of International, and a member of the Executive Committee at the Financial Conduct Authority (FCA), on the FCAs preparations for Brexit and beyond Brexit.
Nausicaa reiterated the FCA’s position on equivalence: "because of our common rulebooks, the UK regime will be the most equivalent in the world to the EU’s on day 1". Whilst it has not been forthcoming to date, in future she expects both jurisdictions to be able to find each other equivalent on an outcomes basis rather than line by line regulatory alignment, respecting the autonomy of one another’s rulemaking. She said that the FCA believes equivalence decisions should be based on technical assessments and not be political.
The European Council has published the decision taken in agreement with the United Kingdom extending the period under Article 50(3)TEU.
The World Bank has launched the Sovereign ESG Data Portal, a free, open and easy to use online platform that provides users with sovereign-level ESG data. The portal is designed to help investors better align ESG analysis with key sustainable development policy indicators and analysis, as well as to increase data transparency and support private sector investments in emerging markets and developing countries.
The Portal is comprised of 17 themes, selected to provide a balanced picture of policy performance and country conditions given data availability; and data is available for download for all World Bank (IBRD and IDA) countries. The initial set of indicators is based on both current market and World Bank usage of these criteria, with the framework incorporates 67 indicators in total – covering all 17 Sustainable Development Goals.
Speech by Dave Ramsden, Deputy Governor for Markets & Banking at the Financial Conduct Authority (FCA), on the Bank of England's approach to fintech.
In particular, Dave discusses three dimensions of openness: being open to new ideas, being open to new businesses entering financial services and being open to improving our own operations.
Interest rate benchmarks
Speech by Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), on ESMA’s role under the Benchmarks Regulation and in the global reform of interest rates
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