AFME Equities Speech

Los Angeles

At this time of year, all across London, politicians and public figures are asked to give the same speech,

What are your predictions for the year ahead?

What will be keeping you busy?

What will the challenges be?

The Brussels variant is what are your expectations for the – incoming – 6 month rotating Presidency?

So I get to do this twice a year not just once!

However, this year I can answer all of these questions as they relate to the financial services sector and in the context of EU financial regulation for 2016 with two words:

Implementation and Review

Gone are the days of the Barnier agenda which sought to push out as much new regulation as possible

A new announcement for the financial journalists leaked in order to scare the City every month.

Suggesting the banning of this, or that or the other.

Instead, Lord Hill, the British Financial Services Commissioner, will be looking at all of the regulation that was passed at the political level

And trying to make it work.

Instead of scare stories for the equities world about 500 millisecond minimum resting periods

We’ll hear about pragmatic reasons why a delay to such a large,


and whole sale change

to market infrastructure and practices

as found in MiFID

can be justified.

The general principle of an overarching 1 year delay has already been accepted by Parliament, Commission and Council

I am not going to bore you with details about the ongoing level 2 discussions

Most of the drafts are already in the public domain

However, my main prediction for MiFID implementation this year is to expect the final level 2 to be agreed in the next few months

The implementation delay is genuinely to allow both the regulators and industry more time to set up their IT systems and prepare for the coming changes

Don’t expect another year of lobbying for things that have already been decided.

I would only foresee changes to what ESMA has produced to bring them in line with the level 1 text


And then only in areas such as:

Position Limits,

Pre Trade Transparency for non-equities

and the ancillary activities exemption

Most of what is applicable in this forum with regards to the equities world, is already out there.

I hope the proposed delay will allow more time for innovative market solutions to the new standard of regulation to be devised.

For me, this is the exciting area of financial services that we will now see new developments in this year.

Innovation in financial markets

The wide ranging and free flowing term – FinTech

As large market players become more encumbered with legacy technology

Old relationships

And stagnant views of the marketplace

New players will emerge to challenge those old assumptions

In some cases this will be because of those regulations that are forcing change onto the market

Services that are no longer profitable within a large bank still need to be provided

The way in which people interact with service providers has already changed


Internet platforms

Social media

All taking the place of the bank manager, investment fund manager and pension advisor

Last year, the buy and sell side came to terms with these new technologies as the place to invest.

The next up and coming industry  you want to be in at the ground floor on

To shape and develop

To understand from the beginning

Every investment bank had to have an accelerator

Every asset manager a primary stake in a fintech fund

The question this year will be whether those start-ups can actually take off

Will the money run dry if returns take longer to produce than expected?

Will the promise of new technologies actually be realised?


Most importantly from my perspective,

Will financial supervisors or regulation kill it off before it starts?

For every new fintech company that comes to see me to explain their new offering

An existing market player comes to talk to me about “preserving a level playing field”

I’m sure if the EU had existed at the time cool box makers would've opposed the development of refrigerators, and someone else would've lobbied me on health and safety grounds.


I see the regulatory challenge being to uphold the principles of the regulation:

Investor protection

Market efficiency

And market stability

While enabling these new technologies and approaches to develop.

Ensuring investors receive adequate information on products before they invest doesn’t have to mean a hundred sheets of paper

The regulation states information should be provided in a “durable format”


Why can’t that be virtual?

A computer file in the cloud is infinitely more durable that a sheet of paper lying around my house

But this relies upon financial supervisors understanding and being open to new developments

The FCA’s regulatory sandbox approach is one that can and should be learned from across the EU.

The goal of regulation should be to provide a framework,

It should be flexible and not prescriptive.

These may not be concepts that have not been applied to EU regulation in the past

But 2016 is all about change

To quote David Cameron, for the EU to survive it needs the speed and flexibility of a network not the cumbersome rigidity of a block.

The question I am asked a thousand times a week is whether is not the UK will still be in the EU by 2017

Surely if there is a vote to leave the EU we won’t even need to implement MiFID on Jan 1st 2018

Maybe instead of lobbying to change the parts of MiFID that they don’t like, AFME and the relevant trade associations should simply be joining the Vote Leave campaign

Let me burst that bubble right now


A vote to leave would not get you out of complying EU financial services legislation

Ask Norway,

Ask Switzerland

For that matter, ask South Africa

If you want to have access to the EU market, you have to comply with EU rules-

Whether directly, or by having national law which is compatible in effect.

While I’m sure there are some in this room who do not have any clients, investors or subsidiaries within the EU,

I suspect they are in the severe minority.

At the end of each set of negotiations on a financial services file there is always the outstanding issue of how to deal with third countries

The UK is often the lone – yet loud – voice fighting to retain open markets

Within Parliament, it is UK MEPs

from across the political spectrum

fighting to ensure something workable is agreed


The Commission staff look at legalistic solutions that are often impractical

The fact that the US, the most advanced financial market in the world –

Outside of London of course

Has spent the past 4 years trying to meet EU equivalence standards for CCPs in the derivatives world

Should give a taste of what we should expect as a financial centre outside of the EU.

It is not a given.

Switzerland’s approach to the much hated AIFMD

to ensure the many asset managers there had access to the EU

was to copy paste the regulation into its statute books

I’m told they even applied a “Swiss Finish” to it,

Adding things to what was there, not removing things.

My biggest prediction for the year ahead is that more and more financial regulation will originate at a global level

Entities like the Basle Committee,

the FSB,


will become genuine forums for decision making

the largest jurisdictions will agree the principles of regulation and they will then be implemented

Differences in implementation will continue

We will still hear about specificities of particular markets

But the similarities will be greater than the differences.

For market participants the more that is harmonised, the easier it will be to navigate.


28 different interpretations of what is highly liquid collateral will provide growth and jobs for lawyers.

Not growth and jobs for the wider economy

The fewer steps there are between global agreements and actual laws, the less add on you should expect

I would love to stand here and predict that the UK will vote to stay in a reformed EU

But I think the outcome is on a knife edge

Column inches have been devoted to process and who is funding what side of the campaign

Yet facts are few and far between

This should not be led by politician’s personal emotional attachment - or not –

to the EU, but based on fact.

My constituents want to know the facts

What does membership of the EU actually mean?

What would leaving mean?

And those facts are not on the front page of the Red tops.

A rather dull report from one of the city analysts, hidden on page 10 of a 20 page report

has attempted to quantify the loss to GDP growth of leaving the EU

This has been calculated as 1% per year for at least 5 years while the uncertainty continues

Yet more dull reports will give dry statistics on trade imbalances

Small print of board reports will give crisis planning on what large employers across the EU will do should there be a no vote.

But none of these are understandable or explainable on the streets of Cardiff or anywhere else in the UK.

Facts that should be in the public domain about what the alternatives to full EU membership are rarely discussed

Did you know that Norway is the 10th largest contributor to the EU in monetary terms?

It paid in just shy of a billion euros in the last 5 year mandate in order to be part of the EEA.

And they had to fully implement the Capital Requirements Directive, along with another 6000 EU Directives.

Directives they had no say over the content on.

Unlike the French banks who had their government in the room arguing for more positive treatment for government bonds

And German banks whose government fought tooth and nail to ensure their Sparkassen banks didn’t have to follow international accounting standards

And even the Danish banks got special treatment for covered bonds relating to their domestic mortgage market.

The Norwegian banks had to take it as a fait accompli.

Given the size of the UK financial services sector, that doesn’t sound like a good deal to me.


Yes, the UK doesn’t always get 100% of what it wants in a 28 way set of negotiations

– but we definitely do better than in a situation where we aren’t even at the table


That being said, the EU does need to reform

Not just for the UK, but for the entirety of the EU.

The Eurozone crisis

The refugee crisis

The Russia crisis

All of these demand a response

But the conditions are there for reform.


The new Dutch Presidency is condition number one

Who better to be in charge at a time of reform than one of the first countries to say no to an EU constitution?

An EU constitution that would have centralised more power in an unelected European Commission

Who better than the country that put forwards a 10 point reform plan for the EU when Gordon Brown was still Prime Minister of the UK?


Surprisingly to everyone, condition number 2 is the Jean Claude Junker Commission

A Commission that has set itself the target of releasing only 20% of the new legislation of previous years.

Just to clarify this is not a 20% reduction but to only generate 20% of the previous Commissions’ legislation

A Commission that has already reorganised itself into a corporate structure

A structure designed to reduce the number of competing departments that might produce more regulation

A Commission that has even appointed one specific Commissioner – who is unsurprisingly Dutch- to be in charge of a Better Regulation agenda

to act as gatekeeper, a final barrier to unnecessary new proposals.

This reform of the commission goes far beyond what David Cameron is calling for

Others in the EU want reform

So instead of all of your Trade Associations adding weight to either the vote leave campaign – or the vote to stay campaign

I would urge you to help get the facts about EU membership out there

What does it actually mean to stay or leave?

Find the facts and publicise them

The financial services sector thrives on data and research

Those who have heard me speak before will know that I love to receive data and evidence to back up a position

I’m not alone

It is right that the UK public is given the opportunity to have their say on their continued membership of the EU

But let’s make a decision based on fact and evidence

Not the misinformation that is currently out there.


To conclude

I am positive about the year ahead.

Less regulation and more flexible and practical implementation

More global cooperation and less unilateral protectionism

A real chance to make a positive case for EU membership.


And Wales qualified for the Euros for the first time since 1958!

So maybe 2016 will be an extraordinarily positive year after all!