Greg Kilminster
Head of Product - Content
AFME urges UK government to strengthen capital markets
The Association for Financial Markets in Europe (AFME), representing Europe's wholesale financial markets, has outlined a series of priorities it believes the UK should undertake to bolster the UK’s capital markets.
Principles for better financial regulation
AFME stresses the need for high-quality regulation to ensure the competitiveness of the UK as an international financial centre. They advocate for the continuation of the Financial Services and Markets Act 2000 (FSMA) model, which empowers independent regulators under parliamentary objectives. However, AFME stresses the importance of holding regulators accountable to democratically elected policymakers.
Key to this framework is a blend of stringent yet straightforward regulations that adhere to high international standards. AFME argues that regulations should be clear and proportionate, maintaining trust in UK financial markets without imposing excessive compliance costs. Additionally, regulation should be risk-sensitive, with benefits outweighing costs borne by investors.
International competitiveness and economic growth
AFME supports the inclusion of a new secondary objective for financial services regulators in the Financial Services Market Act: boosting international competitiveness and economic growth. This objective complements existing goals of consumer protection, market integrity, and competition promotion. AFME believes that a competitive and growing industry is essential for market efficiency and customer protection. They call for regulators to demonstrate their adherence to this objective through their policy decisions.
Regulatory independence and agility
The association advocates for regulatory independence within defined mandates, allowing regulators to respond promptly to market developments. They call for regulations tailored to the UK market that support international competitiveness and align with changing global standards. AFME cautions against regulatory volatility and uncertainty, urging policymakers to develop clear timelines and outcomes for regulatory changes to avoid damaging piecemeal approaches.
Adhering to international standards
AFME highlights the necessity for UK regulations to keep pace with global changes to avoid divergence from other major jurisdictions. A consistent international regulatory framework is vital for cross-border institutions, ensuring open, liquid, and transparent global financial markets. Such a framework will enable the sector to grow and compete effectively.
Addressing current issues in financial services
The paper also identifies several key challenges and opportunities for UK capital markets:
- FCA’s enforcement approach: AFME expresses concern over the FCA’s proposed enforcement approach, as outlined in CP 24/2, which they believe could undermine investor confidence and the UK’s attractiveness as a business hub.
- Tax environment: The association calls for a favourable tax regime that supports both the financial sector and the broader economy. They urge the government to promote long-term investments for the net-zero transition and consider abolishing the Stamp Duty Reserve Tax (SDRT) to encourage capital market investment.
- Bank recapitalisation: AFME opposes deviations from the 'polluter-pays' principle and advocates for smaller banks to meet minimum requirements for own funds and eligible liabilities (MREL).
- DLT-based securities: The association sees potential in Distributed Ledger Technology (DLT) for capital markets and calls for public-sector issuers to adopt DLT solutions to scale these markets.
- Accelerated settlement: AFME supports a joint EU-UK study on the benefits of regional alignment for a T+1 settlement cycle to reduce risk and complexity.
- Green finance: The organisation highlights the role of capital markets in financing climate and environmental goals, welcoming the government’s Green Prosperity Plan.
- Securitisation market: AFME advocates for a revitalised securitisation market to transfer credit risk from banks to markets, freeing up bank balance sheets and promoting lending to the real economy, including SMEs and the net-zero transition.
AFME’s vision for the UK’s capital markets aims to address imminent challenges while capitalising on opportunities to enhance the UK's position as a leading global financial centre.
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UK, EU, and US authorities issue joint statement on AI competition
The European Commission, the UK Competition and Markets Authority (CMA), the US Department of Justice (DoJ), and the US Federal Trade Commission (FTC) have issued a joint statement regarding competition in generative AI foundation models and AI products. The statement provides an overview of potential risks, as well as their commitment to monitoring and sharing knowledge to address them.
Key takeaways
The statement:
- Outlines potential competition risks in emerging AI business models, including concentrated control of key inputs in AI, entrenchment or extension of market power in AI-related markets, and the amplification of risks through partnerships, financial investments, and other arrangements.
- Provides principles for safeguarding competition in AI, focusing on fair dealing, interoperability, and the importance of diverse products and business models.
- Addresses additional concerns, such as potential consumer risks involving deceptive and unfair practices, consumer data privacy and security, and the exposure of sensitive consumer information during AI model training.
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New Australian Banking Code of Practice published
The Australian Banking Association has issued an updated version of the Banking Code of Practice (the Code), which includes enhancements to key protections. The Australian Securities and Investments Commission (ASIC) approved this new version of the Code in June 2024, and it will take effect on 28 February 2025.
Some context
The Code outlines the Australian banking industry’s standards of practice and service for individual and small business customers and their guarantors. It aims to provide customers with additional safeguards and protections not specified in the law. The Code aims to complement the law and, in certain cases, set higher standards.
Key takeaways
The updated Code includes the following enhancements:
- Expanding the definition of a small business from $3 million in aggregate borrowings to $5 million, which means an additional 10,000 businesses will be eligible.
- Improved inclusivity and accessibility for customers, including via interpreter services.
- New provisions for deceased estates.
- Broadening the definition of financial difficulty and enhanced protections for loan guarantors.
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Australia consults on new M&A framework
The Australian government has published its exposure draft on reforming mergers and acquisitions (M&A) legislation as part of its plans to implement the M&A reform it announced in April 2024.
The M&A reforms aim to promote competition, protect consumers, and streamline the approvals process, making the system "faster, stronger, simpler, more targeted, and more transparent."
Effective 1 January 2026, a single mandatory and suspensory administrative merger control system will replace sections 50 and 50A of the Competition and Consumer Act 2010 (CCA) and the current merger authorisation process in sections 88 and 90(7) of the CCA.
The exposure draft sets out the framework for the new merger control system and its key elements, including notification rules, timelines, the suspensory rule, tests for competition and substantial public benefit determinations, limited merits review in the Australian Competition Tribunal, and transitional arrangements.
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APRA releases final amendments to liquidity prudential standards
The Australian Prudential Regulation Authority (APRA) has published final prudential standards (APS 210 Liquidity), a final prudential practice guide (APG 210 Liquidity) and a response to its November 2023 consultation on targeted changes to liquidity and capital requirements.
Some context
In response to lessons learned from the banking crises in the United States and Europe in March 2023, APRA proposed targeted changes to strengthen liquidity and capital requirements for authorised deposit-taking institutions (ADIs). The proposed changes aimed to enhance ADIs’ liquidity positions by valuing liquid assets at their market value, ensuring robust processes for exceptional liquidity assistance (ELA), and strengthening the composition of liquid assets.
Key takeaways
APRA’s response paper outlines its decision to proceed with two of the three proposed reforms:
- ADIs under the Minimum Liquidity Holdings (MLH) regime will be required to adjust the value of their liquid assets regularly for market price movements.
- All banks must be operationally prepared to provide specific key information regarding their financial position when requesting ELA from the Reserve Bank of Australia.
However, APRA has deferred consideration of a proposal to phase out bank debt securities as liquid assets for MLH banks until a broader review of liquidity risk, scheduled to commence next year. In the interim, APRA expects MLH banks to enhance the diversification of their liquidity portfolios in line with existing requirements and guidance. MLH banks are required to submit their annual reviews of liquid assets under Prudential Standard APS 210 to APRA by no later than 1 July 2025. Banks with significant concentrations of bank debt securities should expect increased supervisory attention in line with APRA’s existing supervisory framework.
Next steps
These changes will take effect from 1 July 2025.
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FMA Issues updated guidance for client money and property services
New Zealand’s Financial Markets Authority (FMA) has released new guidelines for providers of client money or property services, as well as custodians, under the Financial Markets Conduct Act 2013 (FMC Act).
The update replaces the FMA’s 2014 guidance for brokers and the information sheet on custodians’ obligations, aligning with the current regulatory framework. The new guidance includes specific directives for custodians, who have additional responsibilities beyond those of general client money and property service providers.
The revision follows issues identified through FMA's monitoring visits and misconduct cases and incorporates feedback from industry consultations conducted in 2022.
Key updates include:
- Custody reporting should be sent directly to clients at an address of their choosing, rather than to financial advisers or other intermediaries.
- If reporting is done electronically, the platform must be the custodian’s own or have secure systems in place to prevent tampering by the platform provider or others in the transactional chain.
- Providers and custodians are advised on steps to verify clients’ electronic addresses.
- Clarification that client money and property rules do not apply to ‘brokers’ as defined by the Insurance Intermediaries Act 1994, and that non-IAA brokers are not considered to be providing a client money or property service.
Under the FMC Act, a ‘provider’ is a financial service provider that holds, transfers, or deals with client money or property on behalf of clients, replacing the 'broker' role defined in the Financial Advisers Act 2008. A ‘custodian’ is specifically defined as a provider that holds money or property for clients, with additional duties such as audit and assurance engagements, client reporting, and reconciliations.
This guidance aims to enhance the clarity and compliance of client money and property service providers, ensuring better protection for investors.
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HKMA issues Dear CEO letter on cryptoasset disclosure requirements
The Hong Kong Monetary Authority (HKMA) has issued a Dear CEO letter to all authorised institutions regarding changes to cryptoasset disclosure requirements.
In July 2024, the Basel Committee on Banking Supervision (BCBS) updated its standards, issuing the following:
- 'Disclosure of cryptoasset exposures', which sets out the final disclosure framework for banks’ cryptoasset exposures.
- 'Cryptoasset standard amendments', which details targeted changes to existing cryptoasset standard.
In its letter, the HKMA announces its intention to align the proposed local regulatory framework, as outlined in the consultation paper (CP) 24.01 'Cryptoasset Exposures', released in February 2024, with the latest updates from the BCBS. The HKMA will further consult with the industry on any significant additional changes in the future.
Click here to read the full RegInsight on CUBE’s RegPlatform