Final communiqué - Meeting of G20 finance ministers and central bank governors
On 19 April 2012, the G20 finance ministers and central bank governors issued a final communiqué following their meeting in Washington DC.
The communiqué looked ahead to the G20 leaders’ summit which will be held in Los Cabos, Mexico on 18 and 19 June 2012 and the work scheduled to be finalised for that summit.
In the communiqué G20 finance ministers and central bank governors:
- Reaffirmed their commitment to common global standards by pursuing the financial regulatory reform agenda.
- Welcomed the Financial Stability Board (FSB) progress report on strengthening the oversight and regulation of the shadow banking system.
- Supported the work coordinated by the FSB to provide safeguards supportive of a global framework for central counterparties (CCPs) as an important element in achieving the agreed over-the-counter (OTC) derivatives reforms, so that authorities can make informed decisions on the standards and requirements of CCPs to meet by end 2012 their commitment that all standardised OTC derivatives be centrally cleared in CCPs with the appropriate safeguards.
- Supported the work of the FSB on the global governance framework for the legal identifier and looks forward to its recommendations in June on establishing a global LEI system.
- Supported work on developing for consultation, internationally consistent standards on margining for non-centrally cleared OTC derivatives by June 2012.
View Final communiqué - Meeting of G20 finance ministers and central bank governors, 19 April 2012
FSB letter to G20 finance ministers and central bank governors regarding progress of financial regulatory reforms
On 16 April 2012, the Financial Stability Board (FSB) published a letter to G20 finance ministers and central bank governors concerning the progress of the financial regulatory reforms agreed by G20 leaders at Cannes. The letter covered a number of areas including:
- Strengthening the oversight and regulation of shadow banking activities. The FSB has put on track a number of initiatives including developing, with other standard setting bodies, regulatory recommendations: (i) to mitigate the spill-over effect between the regular banking system and the shadow banking system; (ii) to reduce the susceptibility of money market funds to “runs”; (iii) to assess and mitigate systemic risks posed by other shadow banking entities than money market funds; (iv) to assess and align the incentives associated with securitisation to prevent a repeat of the creation of excessive leverage; and (v) to dampen risks and pro-cyclical incentives associated with securities lending and repos that may exacerbate funding strains at times of shocks to confidence. A full set of recommendations will be issued by the end of 2012.
- Creating continuous markets - OTC derivatives reforms. The FSB noted that work is well advanced to establish a safe environment for clearing over-the-counter (OTC) derivatives through a global framework of central counterparties. The FSB is also on course to meet the mandate from the G20 leaders’ summit in Cannes to provide recommendations on the governance framework for a global legal entity identifier to the G20 summit in Los Cabos, as well as providing proposals for the implementation of the system.
- Timely and consistent implementation of reforms. The FSB will report to the G20 summit in Los Cabos on progress across the range of reforms. The reporting will include separate progress reports on the three priority areas where the reforms are most advanced (Basel III, OTC derivatives and compensation practices), together with an overview progress report.
View FSB letter to G20 finance ministers and central bank governors regarding progress of financial regulatory reforms, 16 April 2012
ESMA speech - Shaping the future of Europe’s financial markets
On 11 May 2012, the European Securities and Markets Authority (ESMA) published a speech given by its Executive Director, Verena Ross, entitled Shaping the future of Europe’s financial markets.
Ross’ speech is set out under the following headings:
- ESMA’s role in the new EU framework. Ross states that ESMA has two key aspects to its mission as an organisation: the building of a "single rulebook" for the regulation of the EU’s financial markets and ensuring its consistent application at national level.
- Development of a single rulebook. Ross explained that in terms of the development of a single rulebook for Europe, ESMA took on its new role as EU securities markets standard setter with clear responsibilities for the development of technical standards and advice for new, or soon to be revised, pieces of legislation. In particular over the last year ESMA produced the first technical standards (for credit rating agencies and short selling) but also conducted significant preparatory work for devising the standards for the European Market Infrastructure Regulation (EMIR).
- Supervisory convergence. Ross acknowledged that while the single rulebook will be the basis of achieving supervisory convergence, having a single legal text does not actually achieve convergence in implementation and actual regulation on the ground. She stated that supervisory convergence is still very much “work in progress” but describes a number of work streams through which ESMA has worked on achieving a common approach to regulation. This included issuing opinions on the treatment of sovereign debt under IFRS and conducting peer reviews of national authorities’ activities.
- Direct supervision. Ross noted that beyond supervisory convergence, ESMA has been given responsibility to directly supervise a number of cross-border market players. She states that bringing credit rating agencies under the umbrella of EU supervision is a milestone achievement. From 2013 ESMA will also take on direct supervisory responsibility for trade repositories under EMIR.
- Key priorities for 2012. Ross explained that ESMA will work on establishing harmonised binding implementing measures in different areas such as EMIR, the Alternative Investment Fund Managers Directive and the revised Prospectus Directive. She stated that EMIR will dominate ESMA’s agenda for the next 6 months, with a consultation paper in June and final standards due to be delivered by the end of September.
- ESMA’s stakeholders - national regulators, market players and investors. Ross reminded her audience that while it may be the national tendency to see rules and regulations emanating from Brussels as an attempt to stifle the UK’s financial services sector, they should view its consultative process as an opportunity to contribute to the development of the European regulatory system.
- ESMA’s role in international cooperation. Ross stated that global leaders have established common objectives at the G20 level and regulators have set up a number of international groups aimed at providing international consistency the different regimes. Ross further stated that at the end of the process there must be reliance on equivalence and co-operation among authorities.
View Shaping the future of Europe’s financial markets, 11 May 2012
ESMA publishes its 2012 Regulatory Work Programme
On 7 May 2012, the European Securities and Markets Authority (ESMA) published its 2012 Regulatory Work Programme.
The aim of the work programme is to provide information on the planned technical standards, technical advice and guidelines and recommendations that will be issued by ESMA in 2012.
The accompanying press release stated that the work programme was based on the ESMA 2012 Work Programme which was published on 4 January 2012. However, this version provides a more detailed outline of ESMA's individual work streams. Key work streams relate to the Regulation on short selling and certain aspects of credit default swaps, the European Market Infrastructure Regulation and the Alternative Investment Fund Managers Directive.
View ESMA publishes its 2012 Regulatory Work Programme, 7 May 2012
Call for evidence on transaction reporting
During the course of 2012 the European Securities and Markets Authority (ESMA) intends to proceed with an initiative of preparing guidelines on harmonised transaction reporting under the Markets in Financial Instruments Directive (MiFID), which will also include, among others, an update of the guidance issued by ESMA’s predecessor, CESR, entitled How to report transactions on OTC derivative instruments.
On 7 May 2012, ESMA issued a call for evidence in relation to transaction reporting. ESMA has published this call for evidence in order to provide an opportunity to interested parties to comment on this initiative. The deadline for responding to the call for evidence is 4 June 2012.
View Call for evidence on transaction reporting, 7 May 2012
MPs announce terms of reference for corporate governance and remuneration inquiry
On 28 April 2012, the House of Commons' Treasury Select Committee published the terms of reference for a new inquiry into corporate governance in systemically important financial institutions.
Andrew Tyrie MP (Committee Chairman) commented:
“The Committee will seek to address, among other things, why it was that so many experienced and technically competent non-executives - the cream of British corporate life - appeared to be asleep in some of the boardrooms of our major financial firms.
"In systemically risky institutions, it is particularly important to find a way to encourage more constructively engagement with shareholders on crucial governance issues, including risk and remuneration.
“We will look at whether, and if so how, they can and should do more. Rightly, shareholders have shared the blame and the losses.
“When it came to the destruction of major banks, the taxpayer also lost out, making corporate governance a crucial issue of public and Parliamentary concern."
View MPs announce terms of reference for corporate governance and remuneration inquiry, 28 April 2012
ISDA position paper on MiFID/MiFIR: The OTF and SI regime for OTC derivatives
On 2 May 2012, the International Swaps and Derivatives Association (ISDA) published a position paper concerning its views on the European Commission’s MiFID review proposals regarding the Organised Trading Facility (OTF) and the Systematic Internaliser (SI) regime. In the paper the ISDA made the following points:
- The Commission’s approach that the trading obligation should only capture clearing eligible and sufficiently liquid contracts was endorsed.
- The establishment of the OTF category (and the discretion afforded to the operator of an OTF) was welcomed, but the ISDA has reservations about the fact that the derivatives trading obligation promotes multilateral trading systems above bilateral ones, even when the latter offers equivalent levels of transparency.
- Clarity is needed as to the relative roles of regulated trading venues, systematic internalisation and pure bilateral over-the-counter trading.
- The treatment of block trades in derivatives is crucial and that it is appropriate, and in many cases necessary, for such transactions to occur on a bilateral basis, which currently does not appear to be possible under the proposals.
- The SI regime for ‘non-equities’ should operate at the level of liquid instrument to ensure consistency with the approach to pre- and post-trade transparency and the approach to the equities regime.
- More broadly, the Commission’s approach to ‘non-equities’ markets poses a challenge given the differences between asset classes within the non-equities category, such as derivatives and fixed income, with significant differences between them in terms of quoting practice, pricing conventions and levels of automation of trading.
View ISDA position paper on MiFID/MiFIR: The OTF and SI regime for OTC derivatives, 2 May 2012