news & views of the week....

Here is a summary of some key topics that have been in the news this week that might be of interest to those in the funding & financing markets and beyond. The focus continues in the areas of financial stability, sustainable finance as well as the continuation of the intersection of finance and technological advancements.... highlights from SEC Gensler’s address to a US Senate Committee; opposing ESMA and SEC views on MMFs intervention; the OECD Survey forecast for Europe; the ECB to scrutinise banks’ trading books to expose climate risk; the Climate Bonds Initiative report on Green Bond Pricing; the latest ECB view on the roll-out of a digital Euro; and Societe Generale-Forge’s collateral transformation trade involving a digital issued EIB bond….

SEC’s Gensler Testimony to US Senate U.S. Securities and Exchange Commission’s Chair Gary Gensler addressed the U.S. Senate Committee on Banking, Housing, and Urban Affairs: Presently, large parts of the crypto asset sit outside of the regulatory frameworks that protect investors and consumers, guard against illicit activity, and ensure for financial stability. There is not enough investor protection in crypto finance, issuance, trading, or lending. This asset class is rife with fraud, scams, and abuse in certain applications. Gensler has asked SEC staff, working with other fellow regulators, to work along two tracks: - work with other financial regulators under current authorities to best bring investor protection to these markets; and identify what gaps are there that, with Congress’s assistance, that can be filled. Other key SEC’s priorities include: The SEC’s consultation on the use of new and emerging technologies by financial industry firms which includes a review of predictive analytics and other digital engagement practices with a view towards addressing potential conflicts of interest, protect financial stability and resiliency; the SEC’s future proposal for climate risk disclosure requirements for issuers of securities; ESG funds disclosure requirements, with a focus whether fund managers should disclose the criteria and underlying data they use to market themselves as such; and cybersecurity risk governance, which could address issues such as cyber hygiene and incident reporting….

SEC regulator, EU markets watchdog at odds over MMFs’ rule tightening Risks that the US and EU regulatory stance on Money Market Funds might bifurcate in opposite directions are on the rise after the Securities and Exchange Commission signaled a potential U-turn on liquidity rules, stating the market should be left to “work its way to a solution.” Meanwhile, the head of risk analysis at ESMA, doubled down on the need to bolster prudential requirements for the sector, reinstating that setting out additional policy measures was “absolutely warranted.” ?Talking at an Official Monetary and Financial Institutions Forum panel on Tuesday, SEC commissioner Peirce and ESMA’s Kern conveyed opposing views on the need to tighten requirements for MMFs after the sector experienced widespread liquidity runs in March 2020, causing public intervention in the space for the first time since the 2008 financial crisis. “I wonder if it would make sense for us to take an approach that allows the market to figure out what the right solution is and if we can provide as much flexibility and freedom for funds to figure out what tools would work, I think that would be the best way,” Peirce said….

Europe: continue to support recovery, improve future resilience with reforms to economic architecture OECD Surveys - Europe’s recovery is expected to maintain momentum in the second half of 2021 and remain robust in 2022. Euro area inflation is projected to remain below 2% over the medium term, despite a temporary spike. The ECB’s recent definition of a more symmetric inflation objective of 2% was also a positive step, and monetary policy should remain accommodative until inflation reaches that objective in a sustainable fashion. The EU’s NGEU funds will be key to bolstering the recovery and to improving Europe’s growth potential, fostering the digital transition and driving greener growth as the European Green Deal is implemented. Boosting industrial innovation, digital technology, renewable energy and cross-border infrastructure should be a priority. The funds’ success will require a swift implementation of national recovery and resilience plans, using EU grants to add value to economic activity and to complement, rather than replace, national funding for public investment. The Euro Area Survey also insists on increasing cross-border labour mobility, deepening the Capital Markets Union and completing the Banking Union.….

ECB to Scrutinize Banks’ Trading Books to Expose Climate Risk The European Central Bank will look at the trading operations of major lenders as part of climate stress tests next year, after judging that an assessment of loan books alone won’t give enough insight into the fallout they face from global warming. The ECB, which has yet to publicly disclose the parameters of its tests, will also study the reputational and operational risks banks face. The ECB is seeking more details than other central banks. In Europe, politicians want banks to become a key plank in the fight against climate change by steering capital away from polluters. Investors are taking note as banks burdened by carbon-intensive balance sheets may face higher capital requirements, which could erode their power to pay dividends…

Green Bond Pricing Report for H1 2021 | Climate Bonds Initiative Green Bond Pricing in the Primary Market H1 2021 is the 12th iteration in the series and monitors the performance of 56 EUR and 19 USD denominated benchmark size green bonds with a total value of USD75.9bn issued between January and June 2021. The CBI observed strong pricing dynamics for green bonds particularly those denominated in USD of which more are needed. See also the new research into secondary market liquidity, based on data provided by Tradeweb, the results of which could help to justify a greenium where present…

ECB's Weidmann wants digital euro to start small A digital euro, currently under design by the European Central Bank, should have a limited role initially as it could disrupt the bank sector and overly extend the role of central banking, Bundesbank President Jens Weidmann said on Tuesday. "A gradual approach might make sense given the risks involved – that means a digital euro with a specific set of features and the option to add further functionalities later," Weidmann told a conference. The ECB gave the digital euro a green light earlier this summer but the actual launch of the currency could still be around five years away. Among his key concerns, Weidmann argued that in times of crisis, consumers could rush to convert their bank deposits to central bank money, destabilising the financial system as they withdraw a key source of funding….

Securities finance trade of a digital bond issued on public blockchain initiated by SG-Forge Société Générale and its subsidiary Société Générale-Forge have realised a securities finance transaction on a digital bond issued on a public blockchain, in cooperation with a German asset manager. Initially, the European Investment Bank (EIB) issued in April 2021 its first ever digital bond on the public blockchain Ethereum, in collaboration with Société Générale and its regulated subsidiary Société Générale-Forge. Société Générale placed some of the digital bonds to a top tier German-based Asset Manager. Following the placing transaction, Société Générale offered the client to enter into a collateral upgrade trade to optimise the holding of the EIB digital bond. This is the first time that a Digital Bond was borrowed via the blockchain and collateralized on a triparty agent on the back of a traditional contractual setup….

Closing thoughts....

I am sure this brief collection of topics doesn’t reflect everything you are working on but I hope it reflects some of the things you should be interested in….and I hope you find it of use!

Until the next time, I would be pleased to receive your views on any areas of mutual interest.