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.... This week’s highlights include the BIS newsletter that calls for improved cyber resilience, reviews climate-related financial risks and discusses the impact of digitalization along with its Quarterly Review segment on Funding for Fintechs; the EBA issued report on the platformisation of the EU banking and payments sector; the ECB issued its results of climate stress tests on banks in the Eurozone; a BIS Quarterly Review highlighting risks in Sustainable Finance; the UK belatedly joining the Sovereign Green Bond Club with a dramatic entrance - the largest ever green bond and largest ever orderbook for its inaugural green gilt; the ICMA ERCC summary report on the role of the repo market in green & sustainable finance; and the latest CBI blog on the worldwide growth of the Taxonomy….

Basel Committee calls for improved cyber resilience, reviews climate-related financial risks and discusses impact of digitalisation The Basel Committee called on banks to improve their resilience to cyber threats. This follows the Committee's meetings of 15 and 20 September, during which it assessed risks and vulnerabilities to the global banking system and discussed supervisory and policy initiatives. The newsletter will help promote the widespread adoption of measures to strengthen banks' cyber security. It complements previous publications, including the set of principles for operational resilience and operational risk published earlier this year. The Committee also discussed climate-related financial risks, it is assessing the extent to which the current Basel framework adequately mitigates such risks. As part of this work, it is developing a set of related supervisory practices, which it plans to consult on later this year. It will also consider whether any additional disclosure, supervisory and/or regulatory measures are needed….

Funding for fintechs: patterns and drivers This BIS special feature examines trends in equity funding for financial technology firms and the underlying country-specific drivers. Fintechs have raised over $1 trillion in equity globally since 2010. While the investment landscape was initially quite concentrated, it has become more diverse, both geographically and across market segments. Equity funding for fintechs is higher in countries with more innovation capacity and better regulatory quality. It also increases after the introduction of regulatory sandboxes. Early-stage venture capital investment is higher after merger and acquisition activity by large banks, but not after that by big techs….

EBA identifies steps to enhance the monitoring of market developments in Digital Platforms The EBA published a report on the platformisation of the EU banking and payments sector. The EBA identifies a rapid growth in the use of digital platforms to ‘bridge’ customers and financial institutions, a trend expected to accelerate in line with the wider trend toward the digitisation of the EU financial sector. Platformisation presents a range of potential opportunities for both EU customers and financial institutions. However, new forms of financial, operational, and reputational interdependencies are emerging and the EBA identifies steps to strengthen supervisory capacity to monitor market developments. To address this important issue, the EBA sets out steps to enhance supervisory capacity to monitor market developments, the EBA will help competent authorities to deepen their understanding of platform-based business models and the opportunities and risks….

Firms and banks to benefit from early adoption of green policies, ECB’s economy-wide climate stress test shows The ECB published the results of its economy-wide climate stress test. The exercise tested the impact of climate change on 1,600 euro area banks under three different climate policy scenarios. The results show that banks clearly benefit from adopting green policies early on to foster the transition to a zero-carbon economy. Euro area banks could be severely affected under a scenario where climate change is not addressed. The expected losses on corporate loan portfolios are shown to rise significantly over time, driven by ever increasing physical risk, with the potential of becoming critical over the next 30 years. In 2050, the average corporate loan portfolio of a euro area bank is 8% more likely to default under the hot house world scenario than under an orderly transition. When distinguishing between different loan portfolios, the climate-induced impact becomes even more pronounced, and particularly over time. Portfolios most vulnerable to climate risk are 30% more likely to default in 2050 compared with 2020 under the hot house world scenario: this increase is five times larger than the average increase under the same scenario....

BIS: Sustainable finance - trends, valuations and exposures Demand for investment products classified as delivering ESG benefits is booming. The growth of the overall ESG market rides mostly on investors' focus on environmental considerations, particularly in fixed income markets. Both the general public and policymakers have encouraged market participants to support the transition to a low-carbon economy. At the same time, given the very fast growth of the new asset class, there are questions about the possibility that a bubble might develop unless market transparency can be ensured. This BIS update documents the pace of growth of ESG assets over recent years, considers their valuations, provides some indications of the size of investors' exposures, and sketches policy considerations relevant for the nascent regulatory framework….

UK’s first green gilt raises 10 billion for green projects ￡10 billion was raised from the sale of the Gilt this morning: the largest inaugural green issuance by any sovereign, with the largest ever order book for a sovereign green transaction. This will be followed by a second issuance later in the year. Green Gilts will raise a minimum of ￡15 billion for green government projects like zero-emissions buses, offshore wind and schemes to decarbonise homes and buildings in this financial year. By launching the Green Gilt in the run up to COP26 next month, the UK is demonstrating its commitment to tackling environmental challenges and the vital role that green finance plays in this fight….

ICMA ERCC consultation on the role of repo in green and sustainable finance summary report September 2021 ICMA’s European Repo and Collateral Council published a summary report to reflect feedback received in response to a market consultation on the role of repo in sustainable finance which took place earlier this year. The consultation paper, issued in April 2021, was intended to serve as a starting point for promoting a broader discussion in the repo community on sustainability, as well as to explore the existing opportunities and potential risks in this area. The report summarises the consultation feedback, highlighting the key themes raised in the submitted responses. Building on the consultation results, ICMA is considering with the ERCC next steps regarding potential guidance on repo and sustainability in close coordination with the Executive Committee of the Green & Social Bond Principles….

Taxomania! An International Overview - A blog by Climate Bonds Initiative Soaring green finance continues to stir growth of Taxonomies worldwide, The global green and sustainable bonds market has rapidly grown and other sustainability-driven financial products including funds and ETFs have become an important part of the investment landscape. This has driven the growth of detailed guidance around what constitutes a qualifying investment to hold the title “green”. In 2012, the CBI launched its voluntary guidelines for the market in the form of a “taxonomy” and related Certification scheme. In 2015, the People’s Bank of China Green Finance Task Force recommended the adoption of what became a “Green Bonds Endorsed Project Catalogue”. Combined with robust regulation, this underpinned the subsequent rapid growth of a Chinese green bond market. In 2016, the European Commission accepted a recommendation by the EU High-level Expert Group on Sustainable Finance to develop a European “Taxonomy”. The idea of regulatory guidance on what constitutes a green investment has now developed into a veritable “Taxomania”, with numerous taxonomies in development around the world….

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.?

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