Being better informed: December 2014

The financial sector took centre stage again at the G20 summit in Brisbane last month, albeit with greater emphasis on expanding its role in contributing to economic growth and investment. G20 leaders committed to raise GDP by at least 2 percent by 2018, adding more than €1.6 trillion and “millions of jobs” to the global economy. More than 800 measures were set out in an action plan to achieve this goal. Stimulating long-term infrastructural funding was the lead, with plans to establish a global infrastructure hub in Australia funded with both public and private money.

In a similar vein, European Commission (EC) president Jean-Claude Juncker announced plans to create a new European Fund for Strategic Investments in November, to “mobilise at least €315 billion of additional investment over the next three years”.

In fact, stimulating investment runs at the heart of Juncker’s future plans. In his first speech as EC President in late October, Juncker proposed the idea of a Capital Markets Union (CMU) to expand and develop non-bank equity and debt finance in Europe. Reducing reliance on bank credit, particularly amongst small and medium enterprises which get 85% of their funding needs from banks, will be a significant challenge.

The true benefits of facilitating alternative funding mechanisms will only be fully realised if they supplement rather than replace financing provided by a robust and sustainable banking system.

In Brisbane, the G20 leaders welcomed the Financial Stability Board’s (FSB) proposal requiring global systemically important banks (G-SIBs) to hold additional loss absorbing capacity (TLAC) that will protect taxpayers if these banks fail. The FSB's proposal requires a G-SIB to hold a minimum amount of regulatory capital (Tier 1 and Tier 2) plus long term unsecured debt that together is at least 16-20% of its risk weighted assets, i.e. at least twice the minimum Basel III total regulatory capital ratio of 8%.

At the Solvency II Conference in late October the Prudential Regulation Authority (PRA) provided information on what insurers must do to prepare for Solvency II in the months ahead. We have prepared a hot topic to assist firms with preparing for this huge transition and getting on the front foot in responding to the regulator. The hot topic covers the PRA's guidance on supervisory approvals, in particular the matching adjustments and undertaking specific parameters and the key messages for standard formula firms.

The feature this month focuses on remuneration regulation. There have been some important changes this year which might impact how firms pay staff and we consider how the UK and EU approach to remuneration regulation differs from other regions.

 


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