During the financial crisis, which evolved into a sovereign debt crisis in the euro zone, the European Union (EU) committed itself to financial regulation reform and enacted a number of rules to govern the financial sector. The last two years have seen a slow yet steady pivot from focusing on systemic risk concerns towards developing the competitiveness of the EU financial markets under the flagship policy of the Capital Markets Union. Since then, major political events have interjected themselves into these structural discussions. Amongst these Brexit and the Trump administration hold the strongest implications for financial markets in the EU.
Three broad issues now dominate the financial and economic landscape of the EU:
– Reviews of legislation developed under the post crisis package.
Review of the banking regime is composed of several pieces of legislation, namely Capital Requirements Regulation (CRR), Bank Recovery and Resolution Directive (BRRD), and Single Resolution Mechanism (SRM). The review of the regime affecting banking is broad and impacts not only core and investment banking activity, but also holds implications for clearing and risk mitigation for clients and infrastructure providers. Related to this package are two other key sets of proposals: review of the European Market Infrastructure Regulation (EMIR), and the CCP (central counterparties) recovery and resolution framework. The requirements are expected to have implications for the entire financial services sector, including clients. Although further down the pipeline, Avisa is also assisting and advising clients on the development of a prudential regime for non-bank investment banks, a wide-reaching piece of policy work, as well as the impending review of the Alternative Investment Fund Managers Directive (AIFMD).
– Ongoing and re-ignited concerns and sovereign and banking solvency.
As the Greek debt crisis and Italian banking crisis continue to frustrate EU markets, EU policy makers have gone on the front foot as they focus increasingly on developing a secondary market in distressed assets. As well as national regimes, there is also continued focus on policy associated with the development of an EU bad bank, with profound implications for the EU at an economic level.
– Deregulatory and growth agenda.
As the Capital Market Union (CMU) work now enters the second phase, the Commission turns to more structural elements of the EU’s financial markets. Work is already underway on issues such as an EU insolvency framework, a pan-EU pensions product, and importantly the law governing cross-border securities ownership. The focus on shadow banking however remains and is expected to feature strongly in the EU from the second half of 2017.
Fintech is a key aspect of the CMU, with policy consideration going beyond the payments sector and considering the implications for crowdfunding, robo advice, and the broader banking sector.
Taxation policy continues to be pushed by both the European Parliament and Council members as work on country-by-country reporting and the debt equity bias policy thought CCCTB.
The US administrations’ deregulatory approach to the post-crisis legislative agenda through watering down the Dodd-Frank Act is expected to focus the minds of EU policy makers as they consider these three broad areas above. Avisa also assists clients with the ongoing dynamic between the development of the UK’s domestic regulatory regime in parallel with Brexit negotiations. We are currently engaged in assisting specifically on third country relations in securities markets.
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