ECB: Results of the Q1 2019 Survey of Professional Forecasters

News

Gen 26 2019

Respondents to the ECB Survey of Professional Forecasters (SPF) for the first quarter of 2019 reported point forecasts for annual HICP inflation averaging 1.5%, 1.6% and 1.7% for 2019, 2020 and 2021, respectively. These results represent downward revisions of 0.2 percentage point (p.p.) for 2019 and 0.1 p.p. for 2020 compared with the previous (Q4 2018) survey round. Average longer-term inflation expectations (which, like all other longer-term expectations in this SPF, refer to 2023) were revised down to 1.8%, from 1.9% in the previous survey.

SPF respondents’ expectations for growth in euro area real GDP averaged 1.5%, 1.5% and 1.4% for 2019, 2020 and 2021, respectively. This represents downward revisions of 0.3 p.p. for 2019 and 0.1 p.p. for 2020. Average longer-term expectations for real GDP growth were revised down to 1.5%, from 1.6% in the previous survey.

Average unemployment rate expectations were broadly unchanged. At 7.8%, 7.6% and 7.5% for 2019, 2020 and 2021, respectively, the latest expectations continued to point to further falls in the unemployment rate over the next three years. Expectations for the unemployment rate in the longer term remained at 7.5%.

Source: European Central Bank

IOSCO: the importance of disclosing ESG matters

News

Gen 26 2019

The International Organization of Securities Commissions (IOSCO) is today publishing a statement setting out the importance for issuers of considering the inclusion of environmental, social and governance (ESG) matters when disclosing information material to investors’ decisions.

Disclosure of ESG information in the market has increased in recent years. Examples of ESG matters that issuers are disclosing include environmental factors related to sustainability and climate change, social factors including labor practices and diversity, and general governance- related factors that have a material impact on the issuer’s business.

IOSCO monitors and discusses current developments regarding disclosure of ESG information and the perspectives of different market participants, including investors, issuers, and other stakeholders.

Investor perspectives

Today, investors’ interest in ESG disclosure is growing and some investors already significantly value ESG matters in their investment strategy. They highlight that such disclosures are necessary to supplement their investment and voting decisions. Such information includes how ESG matters affect the issuer’s approach to long-term value creation, the nature of strategic and financial risks, and the way the issuer intends to manage them. They also ask issuers to report on the impacts (either potential or realized) resulting from ESG matters. ESG matters may represent material risks and opportunities to an issuer or may, under certain circumstances, pose serious threats to the sustained viability of an issuer.

At the same time, some investors have expressed the desire for enhanced reliability and comparability of ESG information and disclosures, in order to facilitate a more accurate assessment of risk and, accordingly, more informed investment decisions.

Issuer perspectives

IOSCO has observed that some issuers are increasingly disclosing ESG information, either on a voluntary basis or as a result of compulsory requirements at a local level. This trend has resulted in an increase in the overall level of disclosure of ESG information in some industries. However, IOSCO also observes that disclosure practices remain varied among issuers. The type of information disclosed, as well as the quality of information, may differ in and between markets, depending, for example and among other reasons, on the disclosure frameworks used, the disclosure requirements and definitions of materiality imposed by jurisdictions, or the materiality of specific ESG matters to a particular issuer.

Voluntary disclosure frameworks

There are various interest groups and private sector bodies that are active in the area of disclosures related to environment, carbon emissions, climate, social or governance related matters. They have developed various disclosure frameworks that issuers may consider on a voluntary basis when disclosing ESG information. Such frameworks often aim at facilitating and guiding the disclosure of ESG information and attempt to enhance the comparability of such disclosures for investors. Amongst the different frameworks available to issuers in the field of climate change are the disclosure recommendations and methodology developed by the industry-led Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD).

The TCFD has developed climate-related financial risk disclosure recommendations that may be used by companies to provide information to investors, lenders, insurers, and other stakeholders. The objective of this guidance is to facilitate more consistent disclosure practices and encourage firms to align their disclosures with investors’ needs. Similarly, there are other reporting frameworks that have been developed to include ESG matters, including, but not limited to, the Carbon Disclosure Project (CDP), the Global Reporting Initiative (GRI), and Integrated Reporting (IR).

BIS: “proof-of-work” in cryptocurrencies

News

Gen 25 2019

The Bank for International Settlement (BIS) published a paper focusing on how Bitcoin and related cryptocurrencies verify that payments are final, that is, irreversible once written into the blockchain. It points to the high costs of achieving such finality via “proof-of-work”. It then weighs the outlook for cryptocurrencies based on this kind of algorithm, and looks at possible future avenues for progress.

The paper shows that two economic limitations affect the outlook of cryptocurrencies modelled on proof-of-work. The first lies in the extreme costs of ensuring payment finality in a reasonable space of time. The second is that these systems will not be able to generate transaction fees that are adequate to guarantee payment security in future. The paper shows that the future of Bitcoin and related cryptocurrencies is crucially affected by the interplay of these two limitations.

After surveying the market for transactions and the way fees are determined, the paper finds that the liquidity of cryptocurrencies is set to shrink. In this light, the paper then asks how technical progress might raise the efficiency of Bitcoin-type payments. So-called second-layer solutions such as the Lightning Network could help. Or methods other than proof-of-work could be used to achieve payment finality. But these might require coordination mechanisms, implying support from a central institution. Thus, the current technology seems unlikely to replace the current monetary and financial infrastructure. Instead, the question is rather how the technology might complement existing arrangements.

The paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, ie “proof-of-work”. Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via “double-spending” attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of “mining” income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation.

https://www.bis.org/publ/work765.pdf

Nuovi tassi benchmark
Commissione AIFIRM Rischi di Mercato

Articolo

Gen 25 2019
Nuovi tassi benchmark Commissione AIFIRM Rischi di Mercato

I tassi IBOR svolgono un ruolo fondamentale nei mercati finanziari: in particolare il LIBOR è il tasso di interesse predominante per i contratti (ad esempio interest rate swap, mutui, obbligazioni a tasso variabile) nelle valute USD, GBP, CHF e JPY, mentre l’EURIBOR è il tasso più diffuso per i contratti dell’area Euro (cfr. Figure 1).

A seguito della crisi finanziaria, tuttavia, la loro affidabilità e coerenza sono state messe in discussione per le acclarate manipolazioni e per il calo della liquidità del mercato interbancario. La crisi ha inoltre determinato una esplosione delle basi quotate fra tassi che differiscono per divisa o tenor, con conseguente moltiplicazione delle curve di tasso necessarie per valutare a mercato gli strumenti finanziari, e la necessità di gestire il corrispondente basis risk [1]. Tali basi sono la conseguenza del meccanismo di fixing dei tassi, riferiti a depositi interbancari a termine unsecured, e riflettono essenzialmente il rischio di credito e liquidità delle banche partecipanti (IBOR panel banks).

A partire dal 2009, le autorità e gli operatori del mercato hanno intrapreso una serie di iniziative per rinnovare la governance dei principali tassi d’interesse di riferimento e per individuare nuovi tassi basati su transazioni reali in mercati di riferimento stabili e liquidi. In particolare, i “Principles for Financial Benchmarks” emanati da IOSCO nel 2013 stabiliscono 4 aspetti principali per la determinazione dei tassi benchmark: Governance, Quality of Benchmark, Quality of Methodology ed Accountability. Tali principi sono stati accolti nell’area Euro dalla Benchmark Regulation (BMR), che dichiara i tassi EURIBOR ed EONIA come “critical benchmark” ed impone quindi, entro due anni dall’entrata in vigore (ovvero entro il 1 gennaio 2020), una loro revisione per renderli aderenti oppure una loro sostituzione.

Il Financial Stability Board (FSB) ha raccomandato di rafforzare tali tassi di interesse, ancorandoli a transazioni osservabili, consigliando lo sviluppo di nuovi tassi risk free (RFR). A questo fine sono stati predisposti cinque Working Group per le principali valute, che hanno individuato i rispettivi RFR alternativi: in tutti i casi si tratta di tassi overnight (secured per alcune divise ovvero unsecured per altre). Per la divisa USD è stato scelto il tasso SOFR (Secured Overnight Financing Rate), mentre per EUR è praticamente definito il nuovo tasso ESTER (Euro Short Term Rate, unsecured). I tassi overnight, specialmente secured, non sono strettamente tassi privi di rischio, ma possono essere considerati come buone approssimazioni in tal senso.

Nel luglio 2018 AFME, ICMA, ISDA, SIFMA e SIFMA AMG hanno pubblicato l’esito della consultazione rivolta agli operatori di mercato, nella quale vengono identificati i punti di attenzione della riforma dell’IBOR e le raccomandazioni sugli step da effettuare per prepararsi al passaggio ai nuovi RFR e dalla quale è emerso che esistono carenze sostanziali circa la consapevolezza della tematica e gli step finora intrapresi per gestire la transizione.

Transizione

I nuovi contratti conclusi dopo la scadenza BMR (1° gennaio 2020) dovranno essere riferiti ai nuovi RFR. I contratti pre-esistenti (legacy contracts) potranno essere re-indicizzati ai nuovi RFR oppure, se continueranno ad essere pubblicati, contare ancora sui vecchi tassi IBOR. In entrambi i casi sarà necessaria una modalità di transizione (“fallback”) verso i nuovi RFR.

Un passaggio molto importante in tale transizione sarà la costruzione di una struttura a termine per i tassi RFR, sostitutiva dell’analoga struttura a termine oggi quotata per i tassi IBOR sotto forma di tassi di deposito, Futures, FRA (Forward Rate Agreement), e Swap. I nuovi RFR, non disponendo di una struttura a termine con diverse scadenze, richiedono la definizione di una regola per costruire dei tassi a termine. Ad esempio il tasso a 3 mesi può essere costruito come composizione semplice dei tassi overnight sul periodo. Questo tipo di indicizzazione è già ad oggi utilizzata per gli strumenti di tipo OIS (Overnight Indexed Swap) scambiati sul mercato OTC. Sarà poi necessario lo sviluppo di un mercato OTC liquido per tali strumenti finanziari.

L’ISDA ha avviato un’iniziativa a livello internazionale per identificare regole di fallback condivise per gli strumenti derivati, le quali entreranno in vigore nel momento dell’interruzione permanente nella contribuzione degli attuali benchmark. La soluzione di fallback si basa sull’individuazione di un term adjustment e di uno spread adjustment da applicare al RFR individuato. A luglio 2018, l’ISDA ha lanciato una prima consultazione con la proposta di 4 metodologie alternative per il calcolo del term adjustment e 3 metodologie per il calcolo dello spread adjustment, per le divise GBP, CHF, JPY, i cui risultati sono attesi entro dicembre 2018. Una successiva consultazione verrà lanciata per USD ed EUR nel 2019.

Tale metodologia, una volta definita e condivisa, sarà tuttavia applicabile per i soli derivati stipulati sotto ISDA agreement, mentre per gli altri strumenti (e.g. derivati non-ISDA, mutui, titoli) la conversione dovrà essere stabilita e non necessariamente avrà luogo con metodi analoghi, con il rischio di far emergere possibili basis mismatch e conseguenti conflitti contrattuali.

Area Euro

La normativa BMR ha sancito la fine dei tassi EONIA ed EURIBOR così come li conosciamo. L’European Money Markets Institute (EMMI), amministratore di entrambi i tassi, sta effettuando una revisione delle metodologie attuali.

Per quanto riguarda l’EONIA, dopo una fase di studio, l’EMMI ha ritenuto che la liquidità di mercato alla base del meccanismo di formazione dell’EONIA non sia sufficiente per renderlo conforme alla BMR, e si è resa quindi necessaria l’identificazione di un nuovo RFR in sua sostituzione. A tal proposito l’European Central Bank (ECB) ha instituito il Working Group sull’Euro Risk Free Rate, che il 13 settembre 2018 ha suggerito l’ESTER (European Short Term Rate) quale nuovo RFR per l’Euro. Mentre l’EONIA è un tasso di lending basato su depositi interbancari overnight effettuati sulla piattaforma Real Time Gross Settlement (RTGS) operata dall’ECB, ESTER è un tasso borrowing basato delle transazioni riportate dalle banche tramite il Money Market Statistical Reporting (MMSR), e viene calcolato come media ponderata sui volumi superiori al milione di euro, escludendo il primo 25% e l’ultimo 25% della distribuzione dei tassi. L’ESTER, sviluppato dall’ECB stessa, sarà ufficialmente pubblicato a partire da ottobre 2019; nel frattempo, viene pubblicato un tasso pre-ESTER (osservazioni giornaliere a partire dal marzo 2017 con la medesima metodologia di calcolo utilizzata a tendere) allo scopo di familiarizzare con il nuovo tasso. I dati finora pubblicati dimostrano che pre-ESTER è inferiore all’EONIA di circa 8-9 bps e maggiormente stabile (minore volatilità storica e minori spike).

Per quanto riguarda l’EURIBOR, EMMI ha definito una metodologia ibrida, attualmente in consultazione, che mira a superare le problematiche dell’attuale metodologia di calcolo con lo scopo di ottenere un tasso che minimizzi le possibilità di manipolazione e risulti ancorato a transazioni osservabili e resistente agli stress del mercato. Nel caso in cui tale metodologia venisse accettata dai regolatori come aderente ai principi IOSCO e la BMR (scadenza 1° gennaio 2020), il nuovo EURIBOR potrebbe presumibilmente essere il naturale successore dell’EURIBOR attuale. Nel caso in cui, invece, l’EURIBOR subisse la medesima sorte del LIBOR, anche l’area Euro si troverà ad affrontare le medesime problematiche delle altre principali divise. Al riguardo, nello stesso documento in cui veniva sancita la scelta dell’ESTER come nuova tasso risk free, il Working Group sull’Euro RFR ha suggerito di utilizzare l’ESTER come base di partenza per costruire un nuovo tasso benchmark in sostituzione dell’EURIBOR.

Impatti

A seguito della riforma, che avrà un impatto trasversale a tutti i mercati, le aree in cui si possono individuate gli effetti più importanti riguardano la liquidità degli strumenti di mercato indicizzati ai nuovi tassi, la costruzione di nuove curve di tasso e superfici di volatilità, la modifica delle metodologie di pricing, delle coperture, e il calcolo dei rischi. Saranno inoltre di primaria importanza gli aspetti legali, con una possibile revisione di tutti i contratti indicizzati ai tassi oggetto di transizione, e la gestione della clientela per gestire possibili effetti di mismatching e di litigation. Inoltre, si porrà la necessità di effettuare modifiche ai processi aziendali ed alle infrastrutture IT. Al riguardo, sarà necessario porre molta attenzione sulla governance complessiva del processo di transizione, al fine di assicurare la coerenza tra gli impatti dei cambiamenti imposti dalla riforma e di gestire i relativi rischi.

In particolare, per quanto riguarda i rischi di mercato, si posso identificare i seguenti temi più rilevanti.

  • Contribuzioni tassi benchmark: le banche coinvolte nella contribuzione dei tassi benchmark dovranno gestire la transizione verso la contribuzione dei nuovi tassi secondo le nuove regole stabilite dagli organismi di riferimento (ECB per ESTER e prevedibilmente EMMI per EURIBOR per l’area Euro).
  • Dati di mercato: andrà gestita la transizione verso i nuovi tassi benchmark utilizzati come fixing per la valutazione dei contratti ed i relativi strumenti di mercato indicizzati a tali tassi. Andranno inoltre gestite le corrispondenti serie storiche per finalità di risk management (cfr. oltre).
  • Curve e volatilità tasso: utilizzando i nuovi strumenti di mercato indicizzati ai nuovi tassi benchmark, andranno inoltre costruite le curve di tasso e superfici di volatilità, gestendo i probabili problemi di liquidità nel caso in cui il mercato dei nuovi derivati indicizzati a RFR non sia abbastanza liquido e/o i dati non presentino una appropriata granularità. Inoltre è prevedibile un periodo di transizione in cui sarà necessario mantenere sia le vecchie curve e volatilità IBOR-based che le nuove curve e volatilità basate sui nuovi RFR.
  • Collateral management: in caso di revisione dei tassi di interesse utilizzati per la remunerazione del collaterale, andrà gestita la transizione verso i nuovi tassi di marginazione con conseguente revisione di tutti gli accordi di collateralizzazione.
  • Metodologie di pricing: le revisioni di dati di mercato, curve e volatilità tasso ed accordi di collaterale porterà probabilmente ad una conseguente revisione delle metodologie di pricing degli strumenti finanziari, che si articolano sotto vari aspetti come segue.
    • La revisione dei tassi di remunerazione del collaterale implicherà un adeguamento delle curve di scontro utilizzate per l’attualizzazione dei flussi futuri, con conseguenti impatti di sensitivity e P&L.
    • Un ulteriore impatto può determinarsi negli aggiustamenti valutativi, in particolare nelle misure di credit/debt/funding value adjustment (CVA/DVA/FVA) relative alle operazioni non soggette a collateralizzazione, dovuto all’impatto sulle esposizioni future e allo spread di finanziamento.
    • Possibili fasi di illiquidità e di passaggio di curve e volatilità tasso potranno determinare problemi di calibrazione dei modelli di pricing e conseguenti instabilità di prezzi, sensitivity e P&L.
    • In caso di dismissione dei tassi IBOR in favore di tassi risk free si avrà una semplificazione nel numero delle curve e volatilità di tasso necessarie per valutare gli strumenti, ed una semplificazione delle corrispondenti sensitivity (delta e vega in particolare). Di conseguenza si potrà determinare anche una semplificazione dei modelli di pricing, con un ritorno di fatto al mondo mono-curva risalente al periodo pre-crisi 2007.
  • Scenari storici: le nuove curve e volatilità tasso potrebbero non avere, dapprincipio, sufficiente profondità storica per costruire degli scenari storici, con conseguente impatto sulle metriche di rischio che si basano sui dati di mercato storici (e.g. historical VaR).
  • Trading vs Banking Book: date le diverse composizioni e metriche di rischio, si avranno impatti diversi: in particolare, per il Trading Book si rileverà un impatto su VaR, sensitivity, CCR e CVA, mentre per il Banking Book la transizione avrà effetti sulle masse di Bond, Loan e altri strumenti di cartolarizzazione, sia in termini di liquidità che in termini di rischio di tasso di interesse.
  • Basis risk: nel caso in cui l’adozione dei nuovi RFR avvenga a velocità diverse, ad es. più velocemente per i derivati e più lentamente per gli strumenti cash, anche in funzione della divisa, sarà necessario gestire una situazione ibrida con diverse asset class esposte a diversi tassi ed il conseguente rischio base.
  • Impatti sul capitale: la transizione verso i nuovi tassi benchmark richiederà l’identificazione dei possibili impatti sulle metriche di assorbimento di capitale; ad esempio, la mancanza di dati storici sui nuovi RFR potrebbe avere degli impatti alla luce della nuova regolamentazione per il Trading Book (FRTB), dove un punto cruciale per il calcolo delle metriche è la distinzione fra “modellable” e “non-modellable risk factors”.
  • Modelli Interni di Rischio: le eventuali variazioni di modello andranno gestite nell’ambito delle regole vigenti per i modelli interni (cfr. EBA RTS 2016/07 e manuale TRIM).
Figure 1: Notional outstanding balances by reference rate, order of magnitude US$ Trillion as of Dec 2017. Source: Oliver Wyman, Jun.2018

Note

[1] Ad esempio, per gestire i derivati di tasso in divisa EUR il mercato utilizza 5 curve (OIS, EURIBOR 1M, 3M, 6M, 12M) e almeno 6 superfici di volatilità (Cap/Floor EURIBOR 1M, 3M, 6M, 12M, Swaption EURIBOR 3M, 6M). Molte altre curve sono necessarie per gestire derivati e/o collateral cross currency.

Il termometro dei mercati finanziari (18 gennaio 2019)
a cura di Emilio Barucci e Daniele Marazzina

Termometro

Gen 19 2019
Il termometro dei mercati finanziari (18 gennaio 2019) a cura di Emilio Barucci e Daniele Marazzina

L’iniziativa di Finriskalert.it “Il termometro dei mercati finanziari” vuole presentare un indicatore settimanale sul grado di turbolenza/tensione dei mercati finanziari, con particolare attenzione all’Italia.

Significato degli indicatori

  • Rendimento borsa italiana: rendimento settimanale dell’indice della borsa italiana FTSEMIB;
  • Volatilità implicita borsa italiana: volatilità implicita calcolata considerando le opzioni at-the-money sul FTSEMIB a 3 mesi;
  • Future borsa italiana: valore del future sul FTSEMIB;
  • CDS principali banche 10Ysub: CDS medio delle obbligazioni subordinate a 10 anni delle principali banche italiane (Unicredit, Intesa San Paolo, MPS, Banco BPM);
  • Tasso di interesse ITA 2Y: tasso di interesse costruito sulla curva dei BTP con scadenza a due anni;
  • Spread ITA 10Y/2Y : differenza del tasso di interesse dei BTP a 10 anni e a 2 anni;
  • Rendimento borsa europea: rendimento settimanale dell’indice delle borse europee Eurostoxx;
  • Volatilità implicita borsa europea: volatilità implicita calcolata sulle opzioni at-the-money sull’indice Eurostoxx a scadenza 3 mesi;
  • Rendimento borsa ITA/Europa: differenza tra il rendimento settimanale della borsa italiana e quello delle borse europee, calcolato sugli indici FTSEMIB e Eurostoxx;
  • Spread ITA/GER: differenza tra i tassi di interesse italiani e tedeschi a 10 anni;
  • Spread EU/GER: differenza media tra i tassi di interesse dei principali paesi europei (Francia, Belgio, Spagna, Italia, Olanda) e quelli tedeschi a 10 anni;
  • Euro/dollaro: tasso di cambio euro/dollaro;
  • Spread US/GER 10Y: spread tra i tassi di interesse degli Stati Uniti e quelli tedeschi con scadenza 10 anni;
  • Prezzo Oro: quotazione dell’oro (in USD)
  • Spread 10Y/2Y Euro Swap Curve: differenza del tasso della curva EURO ZONE IRS 3M a 10Y e 2Y;
  • Euribor 6M: tasso euribor a 6 mesi.

I colori sono assegnati in un’ottica VaR: se il valore riportato è superiore (inferiore) al quantile al 15%, il colore utilizzato è l’arancione. Se il valore riportato è superiore (inferiore) al quantile al 5% il colore utilizzato è il rosso. La banda (verso l’alto o verso il basso) viene selezionata, a seconda dell’indicatore, nella direzione dell’instabilità del mercato. I quantili vengono ricostruiti prendendo la serie storica di un anno di osservazioni: ad esempio, un valore in una casella rossa significa che appartiene al 5% dei valori meno positivi riscontrati nell’ultimo anno. Per le prime tre voci della sezione “Politica Monetaria”, le bande per definire il colore sono simmetriche (valori in positivo e in negativo). I dati riportati provengono dal database Thomson Reuters. Infine, la tendenza mostra la dinamica in atto e viene rappresentata dalle frecce: ↑,↓, ↔  indicano rispettivamente miglioramento, peggioramento, stabilità rispetto alla rilevazione precedente.

Disclaimer: Le informazioni contenute in questa pagina sono esclusivamente a scopo informativo e per uso personale. Le informazioni possono essere modificate da finriskalert.it in qualsiasi momento e senza preavviso. Finriskalert.it non può fornire alcuna garanzia in merito all’affidabilità, completezza, esattezza ed attualità dei dati riportati e, pertanto, non assume alcuna responsabilità per qualsiasi danno legato all’uso, proprio o improprio delle informazioni contenute in questa pagina. I contenuti presenti in questa pagina non devono in alcun modo essere intesi come consigli finanziari, economici, giuridici, fiscali o di altra natura e nessuna decisione d’investimento o qualsiasi altra decisione deve essere presa unicamente sulla base di questi dati.

BIS: Global Banking, Financial Spillovers and Macroprudential Policy Coordination

News

Gen 18 2019

There is growing evidence that international financial spillovers have become a two-way street. They occur not only from the major advanced economies to the rest of the world, but also, and increasingly, from a group of large middle-income countries to advanced economies. Because financial markets are prone to amplification effects, and because business and financial cycles remain imperfectly synchronised across countries, this new environment creates the potential for shocks in one jurisdiction to be magnified and transmitted to others through short-term capital flows. In turn, these flows may exacerbate financial instability in both originating and recipient countries, thereby creating a case for international macroprudential policy coordination. The Bank for International settlement (BIS) focuses on measuring how large the gains from such coordination are likely to be.

The BIS contribution develops a model to assess the gains from international macroprudential policy coordination. Financial integration is imperfect and a global bank in the core region lends to banks in the periphery. The model is calibrated for two groups of countries, the major advanced economies and a group of large (systemically important) middle-income countries, which have been identified in recent studies as generating significant reverse spillovers (or spillbacks) to advanced economies.

The results show that the welfare gains from macroprudential policy coordination are positive, albeit not large, for the world economy. In addition, these gains tend to increase with the degree of international financial integration. However, depending on the origin of shocks, they can be asymmetric across regions. The fact that gains are not large and that coordination does not necessarily benefit all parties raises a general question about incentives for them to remain voluntarily in a cooperative agreement.

 

Global Banking, Financial Spillovers, and Macroprudential Policy Coordination (PDF)

 

ESMA: survey to NCAs on legal qualification of crypto-assets

News

Gen 18 2019

The European Security and Markets Authority (ESMA) undertook a survey of National Competent Authorities (NCAs) in the summer of 2018 in order to better understand the circumstances under which crypto-assets may qualify as financial instruments in the EU, ESMA .

The survey questions were designed to determine the way in which a given Member State had transposed MiFID II into its national law and based on that transposition whether a sample set of six ICO crypto-assets qualified as ‘financial instruments’ under their respective national laws. The questions referred to the types of financial instruments under MiFID II and took into account each element of the MiFID II definitions of such financial instruments. Also, there were questions on other national rules likely to apply to crypto-assets and the possible future regulatory treatment of crypto-assets and ICOs.

NCAs provided answers to the survey, including the 27 EU Member States (all except Poland), Liechtenstein and Norway. Some NCAs did not provide responses to all questions. In particular, some NCAs considered that the information available was not sufficient to qualify the six crypto-assets. Others have seemingly not formed a view on certain questions yet, because the crypto-asset phenomenon is still nascent and evolving.

There is currently no legal definition of ‘crypto-assets’ in the EU financial securities laws. A key consideration of the legal qualification of crypto-assets is whether they may qualify as MiFID II financial instrument. The existing EU financial regulation establishes a comprehensive regulatory regime governing the execution of transactions in financial instruments.

In an effort to determine the legal status of crypto-assets and determine possible applicability of EU financial regulation ESMA undertook a survey of NCAs in the summer of 2018 with the aim to collect detailed feedback on the possible legal qualification of crypto-assets as financial instruments. The survey questions were designed to determine the way in which a given Member State had transposed MiFID II into its national law and, based on that transposition, whether a sample set of six crypto-assets issued in an ICO qualified as ‘financial instruments’ under their respective national laws.

The sample crypto-assets reflected differing characteristics that ranged from investment-type (crypto-asset cases 1 and 2), to utility-type (case 5), and hybrids of investment-type, utility-type and payment-type crypto-assets (cases 3, 4 and 6). Pure payment-type crypto-assets were not included in the sample set on purpose.

Noteworthy, the vast majority of respondents considered that the qualification of all crypto-assets as financial instruments would have unwanted collateral effects, meaning that there may be a need to distinguish between the different types of crypto-assets. This is understandable considering the variety of crypto-assets being issued. Among the reasons given were

  • the existing regulation was not drafted having these instruments in mind;
  • acknowledging them as financial instruments would grant them potentially unwanted legitimacy;
  • the needed supervisory tools and resources may not be in place.

The vast majority of NCAs agreed that all crypto-assets should be subject to some form of regulation. There was little consensus as to whether a bespoke regulatory regime for those crypto-assets that do not qualify as financial instruments should be designed within the scope of MiFID or outside of it. There were as well diverging views regarding the extent of that regulatory regime, although with a broad consensus on that at minimum all crypto-assets should be subject to anti-money laundering laws.

 

Legal qualification of crypto-assets – survey to NCAs (PDF)

EBA publishes final guidance regarding the exposures to be associated with high risk

News

Gen 18 2019

The European Banking Authority (EBA) published its final Guidelines regarding the types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). Through these Guidelines, the EBA aims not only to enable a higher degree of comparability in terms of current practices in identifying exposures associated with high risk, but also to facilitate the transition to the upcoming regulatory revisions, noting that the forthcoming implementation of the revised Basel standards will only apply as of 2022.

The Guidelines consist of two sections. The first one clarifies the notions of investments in venture capital firms and private equity, which the EBA has taken the initiative to provide for the purpose of these Guidelines only. This step was triggered by the lack of guidance available to the public on these notions and because definitions are deemed necessary to ensure harmonisation on the types of exposures that are considered as investments in venture capital firms and private equity.

The second section specifies the types of exposures listed under Article 128 (3) of the CRR, which should be considered as high risk and provides stakeholders with a clear identification scheme to follow in their process of identification of exposures associated with high risk. This guidance will encourage institutions to single out and specify those individual exposures that carry a high risk of loss as items of particularly high risk and, therefore, structurally different from common exposures of the same original asset class.

 

Guidelines on specification of types of exposures to be associated with high risk (PDF)

Basel Committee endorses revisions to finalised market risk capital framework

News

Gen 18 2019

At its meeting in Basel on Monday 14 January 2019, the Basel Committee’s oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), endorsed a set of revisions to the market risk framework and the Committee’s strategic priorities and work programme for 2019.

The revisions to the market riskframework endorsed by the GHOS today enhance its design and calibration by:

  • introducing a simplified standardised approach for banks with small or non-complex trading portfolios;
  • clarifying the scope of exposures that are subject to market risk capital requirements;
  • enhancing the risk sensitivity of the standardised approach by revising the treatment of foreign exchange risk, index instruments and options;
  • revising the standardised approach risk weights applicable to general interest rate risk, foreign exchange risk and selected credit spread risk exposures;
  • revamping the assessment process to determine whether a bank’s internal risk management models appropriately reflect the risks of individual trading desks (the so-called profit and loss attribution test); and
  • revising the requirements for identifying risk factors that are eligible for internal modelling and the capital requirement applicable to risk factors that are deemed non-modellable.

These revisions were informed by the Committee’s quantitative impact analyses. Once implemented, the revised framework is estimated to result in a weighted average increase of about 22% in total market risk capital requirements relative to the Basel 2.5 framework. By contrast, the framework issued in 2016 would have resulted in a weighted average increase of about 40%. The share of risk-weighted assets (RWAs) attributable to market risk remains low, at around 5% of total RWAs.

The revised market risk framework will take effect as of 1 January 2022, concurrent with the implementation of the Basel III reforms endorsed by the GHOS in December 2017. A description of the background, objectives and overall impact of the market risk framework is set out in an accompanying explanatory note.

The GHOS also endorsed the Committee’s strategic priorities and work programme for 2019. The Committee’s work programme for 2019 focuses on four key themes: (i) finalising ongoing policy reforms, and pursuing targeted new policy initiatives where needed; (ii) evaluating and monitoring the impact of post-crisis reforms and assessing emerging risks; (iii) promoting strong supervision; and (iv) ensuring full, timely and consistent implementation of the Committee’s post-crisis reforms.

“The final revisions to the market risk framework provide additional clarity to the Basel III post-crisis reforms, and allow banks and supervisors to implement the framework in a timely manner. Looking ahead, the Committee will increasingly focus on evaluating post-crisis reforms and addressing new and emerging vulnerabilities in the banking system” said Mario Draghi, GHOS Chairman and President of the European Central Bank.

 

Minimum capital requirements for market risk (PDF)

Explanatory note on the minimum capital requirements for market risk (PDF)

PRIIPs: true transparency at last?
a cura di Deloitte Italia

Articolo

Gen 18 2019
PRIIPs: true transparency at last? a cura di Deloitte Italia

The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation went live with MiFID II in January 2018, introducing requirements for firms to disclose specific information on certain investment products or services. The regulation’s main objective is to help investors assess the money value of these investments and make more informed decisions.

Some important issues have arisen since the implementation of KID and a process of regulatory review has been activated by the ESAs (European Regulatory Authorities).

This article aims to assess whether the PRIIPs regulation has created transparency and comparability across investment products, and the implications in the relationship with retail clients, on the basis of the observation of the market application of the new regulatory framework.

 

New Forms of Disclosure for PRIIPs

PRIIPs include a wide range of products such as investment funds, investment trusts, insurance-based investment products, structured investments (i.e bonds with derivatives components), and structured deposits.

Under the regulation, manufacturers/issuers are obliged to produce a Key Information Document (KID) for each product in scope.

The KID must be provided in the investors’ local language and be published on the company website prior to the product being offered to retail investors. Any distributor or financial intermediary, who sells or provides advice to a retail investor about PRIIPs, or receives a buy order on a PRIIP from a retail investor, must provide him/her with a KID.

KIDs are standardized three page documents built to answer the following four questions:

  • What is the product?
  • What are the risk?
  • What are the costs?
  • What do I get in return?

The document provides specific information such as the aggregated charges associated with the product as well as a breakdown of costs, riskiness, and the simulation outcome of different performance scenarios. All the information is summarized in the document and the net effect of the costs included is presented as an annual percentage reduction in yield.

For UCITS funds that meet the definition of PRIIP, a transitional period was planned until 31 December 2019, and has recently been voted for an extension by another two years [1].

 

Proposed changes for PRIIPs

Since its implementation, Manufacturers and Distributors have experienced several issues related to the following topics:

  • Performance scenarios methodology;
  • Calculation of “Transaction costs”;
  • Different representation of cost and charges between PRIIPs and MiFID II.

In October 2018, the ESAs sent the European Commission a letter to propose how to tackle the key issues which have arisen since the implementation of KID. In November, the ESAs issued a consultation paper on targeted amendments to the Delegated Regulation covering the rules for KID. The consultation paper addresses, in particular, amendments to the information regarding investment products’ performance scenarios.

While the abovementioned consultation was still open, representatives of the funds industry have increased their lobby strongly supporting a delay in the application of PRIIPs to UCITS funds to the 2022 horizon, finally voted by the ECON committee last December.  It is worth mentioning that nothing has changed in the current regulation therefore, as of January 1st  2022, a retail investor investing in a UCITS product will be given two different documents: the KIID for UCITS and the KID for PRIIPs. However, the Commission has been given one more year to finalize their Level 1 review (by 31 December 2019) with the expectation to address the question of the overlapping.

 

Performance Scenarios

PRIIPs requires the financial industry to inform retail clients on the possible evolution of their investment under different future scenarios, to assess the possible product losses or gains in different market conditions. The intention is to increase both client’s awareness on the products’ risks and the comparability with other similar financial instruments.

The regulation requires four performance scenarios in which the financial industry has to report the incomes or losses in absolute terms (assuming an investment of tenthousands euros) over different time periods, until the product’s maturity or the recommended holding period expires. Absolute gains and losses have to be illustrated adjusted for the costs the client would incur.

A favorable scenario, a moderate scenario, an unfavorable scenario, and a stressed scenario aim to depict clearly, through a forward looking approach, the evolution of investment losses and gains depending on the possible future market movements. While for some instruments the performance scenarios work well, this would not be the same for others. Some products are reporting incoherent performance scenarios (example below extracted from the KID of a certificate on “Eurostoxx 50” index.)

The forward-looking approach of the performance scenarios failed due to the dependence on the assumption that historic returns will continue in future. The simulation of the future performance scenarios is driven by the historic returns the product has had over its recommended holding period.  Looking at the equity markets over the last years characterized by a strong positive performance, the KID’s performance scenario methodology could bring positive results also under the unfavorable scenario. The investor could misinterpret such performance scenarios, considering these products less risky than others and able to grant a profit also during negative market conditions.

 

Consideration of “Transaction costs”

In the PRIIP KIDs, recurring costs, including the transaction costs, must be disclosed in percentage terms. The PRIIPs delegat act sets out how firms should calculate actual transaction costs: they must be determined using an “arrival price”, which requires firms to calculate the difference between the bid/ask midpoint price where a trade is first submitted, and the final execution price of the same trade. This means that the costs disclosed are often heavily influenced by market movements and, in some cases, have resulted in some firms disclosing negative figures for their transaction costs. These negative figures may lead investors to draw inaccurate conclusions about the desirability of certain funds and the true brokerage charges which they will ultimately bear.

 

Different representation of cost and charges between PRIIPs and MiFID II

With the introduction of PRIIPs, MiFID II has also introduced a requirement for firms to disclose an aggregate cost figure across all financial instruments in pre-sales activities. The MiFID perspective is different and covers all kinds of investors (not only retail as for PRIIPs) and the entire service value chain (e.g. cost of distribution, cost of service) where incentives paid or received by the distributor have to be reported. For the first time investors receive the overall cost of investing.

Differently from PRIIPs, no format template or guidelines have been foreseen by the regulation.  Thanks to PRIIPs and MIFID II investors should now have a much wider set of costs and charges figures across a much wider set of investments. Nevertheless, full comparability and transparency is still very far.

 

Conclusion and impacts for firms

It is evident that PRIIPs has still not reached its purpose, with significant issues emerging that are limiting the new Regulatory framework from expressing its potential.

While Regulators have already activated the process to review the requirements, firms are free to take additional steps to help investors navigate the new set of information provided to them and reduce the possibility of inaccurate interpretation. Such steps could include:

  • reporting all information in one place consistently with the investment process (e.g. presenting all information together with the investment proposal)
  • explaining how various cost and charges figures and risk indicators are calculated and why differences can exist;
  • explaining why they are required to produce these information and warning the customer about its limitations.

 

Alessandro Mastrantuono | Director Deloitte Consulting

Emanuele Meo | Senior Manager Deloitte Consulting

Donato Masi | Manager Deloitte Consulting

 

Notes

[1] At the beginning of December 2018, the Committee on Economic and Monetary Affairs of the European Parliament (ECON committee voted to postpone the PRIIPs application to UCITS to 2022 (initially scheduled for 2020).