ECB to create interest-rate benchmark | May to propose 2-year post-Brexit transition | Investment banks brace for poor earnings reports
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22 September 2017
GFMA SmartBrief
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Morning Bell
ECB to create interest-rate benchmark
Responding to deteriorating confidence in existing benchmarks for interest rates for the euro, the European Central Bank said it plans to develop its own overnight reference interest rate no later than 2020. The new reference rate is intended to serve as a backstop for existing private-sector benchmarks, the ECB said.
Reuters (21 Sep.),  The Wall Street Journal (tiered subscription model) (21 Sep.),  Politico Pro (subscription required) (21 Sep.),  Risk (subscription required) (22 Sep.) 
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Industry News
May to propose 2-year post-Brexit transition
May to propose 2-year post-Brexit transition
May (Jack Taylor/Getty Images)
UK Prime Minister Theresa May will call for a transitional arrangement lasting two years after Brexit to ensure the UK's departure from the EU is carried out smoothly, according to excerpts from her upcoming speech on the matter that were released by the government. She is expected to propose that the UK pay €20 billion over two years to settle its financial obligations to the EU.
BBC (22 Sep.),  The Guardian (London) (21 Sep.),  Politico (22 Sep.) 
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Investment banks brace for poor earnings reports
Analysts warn that major investment banks' third-quarter earnings in the US and Europe look likely to be disappointing, with some predicting falls of as much as 25% in fixed-income trading. Several managers say conditions might be equally difficult through the rest of this year.
Financial News (UK) (tiered subscription model) (21 Sep.) 
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Expert proven right about banking troubles in Russia
Russia's central bank said it is nationalising B&N Bank, the regulator's second bank bailout in a matter of weeks. Sergei Gavrilov, an investment adviser at Alfa Capital in Moscow, had warned his clients in August that bank rescues were on the way.
Bloomberg (21 Sep.),  Financial Times (tiered subscription model) (21 Sep.) 
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Regulatory Roundup
Draghi: Monetary policy alone won't correct imbalances
Draghi: Monetary policy alone won't correct imbalances
Draghi (Raigo Pajula/AFP/Getty Images)
Mario Draghi, speaking in his capacity as head of the European Systemic Risk Board, said financial and business cycles can become imbalanced amid low inflation, but added that monetary policy cannot be used to correct them. Emerging property bubbles are being identified in some cities, but Draghi says these issues need to be addressed at a local level.
Reuters (21 Sep.) 
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ECB opens consultation on fintech licencing
The European Central Bank is inviting views on how financial-technology firms can apply for banking licences and register themselves as lenders, with the aim of establishing harmonised and appropriate standards. The ECB has issued a pair of draft guides and has requested comments by 2 November.
Politico Pro (subscription required) (21 Sep.) 
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EU regulators foresee Brexit financial stability risk
The UK's loss of access to the EU single market poses a threat to financial stability as the continuity of contracts between EU and UK counterparties is disrupted, the three European Supervisory Authorities reported. The financial regulators also predict a loss of market confidence during what will be a lengthy transition to European-based financial services.
Politico Pro (subscription required) (22 Sep.) 
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FCA to examine investment firms' trade reporting
The UK Financial Conduct Authority plans to take a close look early next year at investment firms' compliance with the strengthened reporting requirements imposed by Europe's revised Markets in Financial Instruments Directive, which takes effect in January, said Stephen Hanks, a markets policy manager. He said the FCA plans to move swiftly on reporting requirements because it is easier for firms to correct deficiencies when a new requirement takes effect than later.
MLex (subscription required) (21 Sep.) 
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Spotlight on China
China's debt growth prompts S&P to cut credit rating
S&P Global Ratings downgraded China's credit rating to A+ from AA- citing increased debt. Ratings on HSBC China, DBS Bank China and Hang Seng China were also lowered.
Bloomberg (21 Sep.),  Reuters (22 Sep.),  Financial Times (tiered subscription model) (21 Sep.) 
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Tech Trends
Machine learning aids banks in model compliance
Banks are increasingly turning to machine learning to help them cope with stricter risk-modelling regulations. "Even if you have a simple econometric model which you can explain to the regulator, you can also use your machine-learning model as an alternative model and say, 'OK, I have checked and tested my other model with this machine-learning model'," says Mostafa Mostafavi of Credit Suisse Group.
Risk (subscription required) (21 Sep.) 
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GFMA News
The Capital Markets Conference: Where the Capital Markets Meet -- 23-24 October in Washington, D.C.
Returning to Washington, D.C., on 23-24 October, SIFMA's Annual Meeting features candid conversations and in-depth breakout sessions on the state of the capital markets, including today's business, economic and financial regulatory outlook. Confirmed speakers include US Treasury Secretary Steven Mnuchin; Abigail Johnson of Fidelity Investments; David Solomon of Goldman Sachs; and Warren Stephens of Stephens Inc. for one-on-one conversations. Join us for expert insights and unparalleled networking with the foremost policymakers, regulators and financial-market experts. Early-bird rates now available.
The Washington Post (tiered subscription model)/The Associated Press (12 Sep.) 
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ASIFMA News
ASIFMA Infrastructure Conference: The Path to the Belt and Road, on 26 September in Hong Kong
ASIFMA, in collaboration with Infrastructure Financing Facilitation Office (IFFO) of the Hong Kong Monetary Authority (HKMA), will host an event that focuses on financing-specific topics and more technical-in-nature discussions about the barriers and solutions to financing the Belt and Road. It expects to bring together the regional infrastructure community to participate in high-level dialogues around related key issues. Register now given seats are limited!
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It is a thing of no great difficulty to raise objections against another man's oration -- nay, it is a very easy matter -- but to produce a better in its place is a work extremely troublesome.
Plutarch,
biographer and essayist
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