Being better informed: February 2015

Our annual survey of business leaders from around the world was launched at Davos in January. The overwhelming majority of CEOs surveyed believe that regulation (again) is the biggest threat to growth prospects in 2015. CEOs see regulation as creating upheaval and more costs on the one hand, while diverting attention from other strategic challenges on the other. In conversations our financial service clients tell us they have three major priorities – finding growth in a challenging environment, driving productivity, and getting ahead of risk and regulatory management.

Fewer CEOs than last year think global economic growth will improve over the next 12 months, though confidence in their ability to achieve revenue growth in their own companies remains stable. The situation in Europe is particularly acute. The austerity/stimulate debate kicked-off again in January following Syriza’s election victory in Greece. But while debate continues about the optimal fiscal path to recovery, the necessity of having a well-functioning financial system remains sacrosanct.

Policy makers in Europe’s focus this year will be unlocking additional investment from the financial systems to help stimulate growth and jobs. On 28 January 2015, the European Commission (EC) kicked-off its Capital Markets Union (CMU) following a “positive” orientation debate of its college of commissioners. It expects to launch a Green Paper on CMU in February 2015 with a view to a full action plan by the third quarter of this year. Elsewhere, the European Insurance and Occupational Pensions Authority recently announced plans to start a new work stream on insurers’ infrastructure investments while the European Banking Authority, Bank of England and Federal Reserve are continuing to investigate ways to stimulate “prudent” securitisation.

The FCA published its much-anticipated finalised guidance on the boundary around regulated advice in January. This is a hot topic right now, with a large number of firms looking to find ways to offer customers simpler, lower cost ways to access investments and pensions compared with traditional full financial advice services. The timing is especially important given the changes to pensions that will come into effect in April. Many people will be looking to their pension providers to help them make decisions and this guidance will dictate whether firms feel they can meet that demand. See our blog for Lee Clarke’s thoughts on the key points.

In the derivative-space, the EC’s Olivier Guersent briefed the Economic and Monetary Affairs Committee (ECON) of the European Parliament (EP) on a recent EU/US Financial Services Dialogue meeting on 27 January. Progress has now been made on the derivatives dilemma. Although EU firms will still need to be registered in the US, substituted compliance will be applied to a number of the requirements.

On 27 January 2015, ECON finalised its view of the new MIF (multilateral interchange fees) Regulation: a large majority of members voted in favour. The EP will now vote on the Regulation at an April plenary, after which it needs to be endorsed by the Council. But we expect the rules to be applied toward the end of this year or early next year (six months after entry into force).

Elsewhere in Europe, the European Central Bank (ECB) sent a letter to big Eurozone banks on dividend distribution policies on 29 January 2015. The letter calls on banks to adopt a conservative policy when distributing dividends, taking into account the challenging economic and financial conditions. Banks which failed the comprehensive assessment have been told not to distribute dividends and instead focus on replenishing their balance sheets. The ECB also notified all Eurozone banks that variable remuneration will be “thoroughly reviewed” in the coming months.

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