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Global regulatory update

Global regulatory update. ACSDA General Assembly Santiago de Chile April 2014. 2006 : Mortgage defaults in the US subprime mortgage market Global economy contaminated through securitisation Compounded by Credit Default Swaps which led to freeze of private credit markets

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Global regulatory update

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  1. Global regulatoryupdate ACSDA General Assembly Santiago de Chile April 2014

  2. 2006 : Mortgage defaults in the US subprime mortgage market Global economy contaminated through securitisation Compounded by Credit Default Swaps which led to freeze of private credit markets Freeze caused liquidity problems and insolvencies National governments forced to support domestic banks and provide emergency liquidity The origins of the Crisis…

  3. 2009 : Banking crisis reinforced by Eurozone sovereign debt, growth and competitiveness crisis Eurozone faced governance issues 2012 : European Stability Mechanism established as a permanent rescue mechanism Reform of regulation of financial institutions …and its spread

  4. Pre-crisis regulatory drivers… Securities Markets

  5. …have been transformed post-crisis PREVENTION • Prevent negative impacts from bank losses and failures • Increase capital and liquidity buffers • Reduce risk profile • Ensure orderly failure without taxpayer support TRANSPARENCY • Improve transparency particularly of the derivatives market • more trading on exchanges • More clearing via CCPs • Reporting to Trade Repositories BEHAVIOUR • Improve behaviour and integrity of financial markets • Ensure consistent regulation across European markets

  6. Global bodies e.g. G20 are now main drivers for regulatory change with local implementation by national authorities. The Main Global Authorities

  7. The Global scope of post-crisisreforms • Global Measures • Prevention of failures: Recovery & Resolution, G-SIFIs & Capital add-ons: Basel 3, intra-day liquidity, spec. add-ons for G-SIFIs • Change of behaviour: Shadow Banking, Banker compensation • Transparency: LEI, Client Asset Protection • Attention to FMIs: CPSS/IOSCO PFMIs, Central clearing of OTC derivatives, R&R of FMIs • Asia-Pacific Measures • Asia was only indirectly hit by the crisis; initiatives are hence on: • Implementation of Global commitments • Enhancements of local markets and market infrastructures through • OTC Derivatives reform in HK, Japan and Australia, HK multi-currency clearing, RMB as a settlement currency • US measures • Prevention/Behaviour/FMIs: Transparency: Dodd-Frank Act, Volcker Rule, Consumer Protection Act, Resolution Planning, Basel 3 • Behaviour: Triparty collateral review • FMIs: OTC Derivatives, Designated Financial Market Utilities • Other: FATCA • EU Measures • Prevention: Bank Recovery & Resolution, Banking Union (SSM, SRM), CRD IV/CRR, Liikanen report on bank restructuring, DGS, ICS • Behaviour/ Transparency: MIFIR & MIFID, AIFMD review of UCITS, Securities Law Legislation • FMIs: EMIR, CSDR, T2S, R&R for FMIs • Other:FTT

  8. Drivers of change in the EU securities markets

  9. T2Sis of particular importance to CSDs.. A technical settlement infrastructure for European CSDs and Central Banks providing: A technical platform: • With Both cash & securities a/c (integrated model) • Creation of realignment instructions between the accounts that CSDs hold with each other • Management of static data reflecting securities eligible on each link Lean settlement functionalities • Validation • Matching • Settlement • Basic reporting A unified operating window • Night time settlement with multiple sequences • Real time settlement

  10. …as is CSD Regulation Designed to make CSDs safer but introduces more competition . Defines what a CSD is authorised to do Introduces process changes mandatory dematerialisation or immobilisation of securities Can be a challenge for some States, hence 2025 as a deadline T+2 settlement cycle mandatory measures to address settlement fails Disclosure and potential suspension of systematically failing participants Introduces specific authorisation and supervision process Passport with cooperation between home and host authorities Mandatory User Committees Defines rules for CSDs with a banking licence including capital requirements

  11. Other relevant regulatory initiatives AIFMD Fund depositaries: specific treatment in case of custody performed by SSS: SSS services are not a delegation of a depository Resolution and Recovery Regimes CPSS/IOSCO & FSB consultations on special regimes for FMIs and their participants; Expected EU Commission initiatives Securities Law Legislation Long-awaited, and covering rules for holding and transfer of securities Will impact whole custody chain May also deal with collateral re-hypothecation issues Financial Transaction Tax (FTT)

  12. Effects on the industry are significant, still not fully understood nor predictable (since so many regulations have yet to be implemented) but still growing Balance sheet restructuring will continue, driven by deleveraging the ECB’s Asset Quality Review (undertaken by the ECB prior to the introduction of the Single Supervisory Mechanism in the Eurozone) the CRD the need to maintain complex recovery plans, contribute to new statutory resolution funds, and potentially issue new bonds which can be bailed-in (i.e. convertible into equity) if necessary These additional costs will result in internal cost reduction and a search for economy of scale gains through (for example) mutualisation (outsourcing) of back offices restructuring, specialisation, and disintermediation (as non-banks increase their share of the financing market) How do these initiatives affect our clients?

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