The European Commission’s (EC) public consultation on the capital markets union (CMU) mid-term review, which closes today, paves the way for the return of innovation, according to BNY Mellon’s Pershing, the bank’s clearing services business.
The eight-week consultation period, which began January 20, aims to gather feedback on how the current CMU programme can be updated and completed so that it represents a strong policy framework for the development of capital markets, building on initiatives that the EC has presented so far.
When it launched the consultation eight weeks ago, the Commission commented: “Good progress has been made on the venture capital package of the CMU Action Plan” but conceded that “other options could also be explored” given that “venture debt … is well developed in the US but is in its infancy in the European Union (EU).”
“Many market participants are currently too focused on keeping their heads above the water with the pace of regulatory change to make full use of the opportunities CMU offers,” comments Mark John, Pershing’s head of product and business development for Europe, the Middle East and Africa (EMEA).
“It is without question a positive development, but in the short-term both the buy and sell-side are dealing with only the compliance aspects, alongside their more pressing Markets in Financial Instruments Directive (MiFID II) requirements. Many firms are compounding their challenges by addressing regulation on an individual basis, without the resources or infrastructure in place to benefit from the efficiencies gained from a holistic approach.
“By the end of 2019, after the implementation of CMU, the industry will be in a better position to reflect on a decade’s worth of post-financial crisis, regulation-driven progress. A short period of evaluation, with necessary adjustments to the systems and processes that have been built, will then lay strong foundations for long-awaited innovation.
“This groundwork, in conjunction with the opportunities the CMU offers, will provide the basis for innovation that will finally allow financial services firms to move forward with exciting, revenue-generating projects from 2020.
“Firms on both the buy and sell-side have been suffering from a tunnel vision leading them to compartmentalise regulatory projects, adding challenges and implementation costs. Companies which build a holistic plan based on their desired end result will not only comply with the current cycle of regulation more efficiently, but will be best placed to take advantage of the innovation opportunities which follow in a strengthened and transparent financial world.”
The Commission has been developing CMU, a set of plans aimed at freeing up capital to boost the European economy, over the past 18 months. They includes proposals to promote securitisation – the repackaging of loans, mortgages, or other contractual debts, and then selling off the risk on those loans, which became controversial after it was identified as a major contributor to the 2008 financial crisis in the US.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.
The EU and US’ shift in accounting standards may bring balance sheet losses and increase credit risk, according to James Elder, director of risk services at Standard & Poor’s (S&P) Global.