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Welcome to Euro Shorts, a short briefing on some of the week’s developments in the financial services industry in Europe.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.

Claire Cummings

020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com

Merkel wants Greece to stay in the Eurozone

Angela Merkel said this week that she wants Greece to stay in the eurozone, as "…All my work in connection with the eurozone crisis was aimed and is aimed at strengthening the eurozone as a whole, with all its members, including Greece." She added that "This principle continues to apply for us in the cooperation with every Greek government," amid signs that radical left-wing Syriza party, which is anti austerity, is expected to win the snap elections on January 25th. Syriza wants to abandon the austerity policy imposed by the EU and the IMF as part of the country's €240 billion bailout.

ECB planning sovereign debt purchase

According to reports today, the European Central Bank will decide on the scale of a planned sovereign debt purchase at next week's meeting, in the clearest sign that the bank will launch the controversial stimulus measure. An ECB board member, Benoit Coeure, said that the ECB would “..take the American and British experiences into account in order to determine the amount of debt to buy so as to reestablish confidence and bring inflation back to a level close to and lower than 2 percent, while keeping in mind the institutional specificities of the

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eurozone". The ECB has been priming the markets for such purchases, championed by President Mario Draghi, who has said that the Bank had few other options at its disposal to counter the risk of deflation.

Swiss National Bank surprise U-turn on currency cap

The Swiss National Bank scrapped a three-year-old cap on the Swiss franc this week, which caused the currency to soar against the euro and stocks to plunge on fears for the export-reliant Swiss economy. The move caused considerable surprise, as only last week, SNB officials had described the 1.20 francs per euro cap, introduced in 2011 at the height of the euro zone crisis to fend off deflation and a recession, as a policy cornerstone. The U-turn fed speculation that the ECB’s imminent quantitative easing (QE) scheme will be so big that the SNB would have struggled to defend the cap. Currency speculators and global macro hedge funds with large short positions in the Swiss franc are reported to be looking at massive losses.

ESMA updates AIFMD Q&As

ESMA has updated its Q&A paper on the application of the AIFMD. The new Q&A are all grouped under the heading of reporting to national competent authorities under Articles 3, 24 and 42. The aim of the Q&A is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures. The answers are also intended to help AIFMs by providing clarity on the content of the AIFMD rules. The Q&A were previously last updated in November 2014.

CRD IV capital buffer introduced

The Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 have been published, which introduce a capital buffer called the "systemic risk buffer" for banks, building societies and investment firms. The buffer is intended to make such firms more resilient to certain long-term systemic risks in the economy. The Financial Policy Committee (FPC) will be responsible for setting out the framework for determining which institutions should hold the buffer and, if so, how large the

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buffer should be. It will need to publish this methodology by 31 May 2016. The PRA will be responsible for applying the framework and will have ultimate discretion over which firms must hold the buffer and its size. The Regulations were made on 12 January 2015 and come into force, unless otherwise stated, on 31 May 2016. The systemic risk buffer is applicable from 1 January 2019.

Joint EU/US statement on financial markets

The European Commission has published a statement on its latest financial markets regulatory dialogue (FMRD) with the US. Both sides welcomed the progress made by US and EU authorities since the global financial crisis to bolster the resilience of financial markets and reiterated their commitment to work together to advance financial regulatory reform in a consistent and convergent manner. Key issues raised during the talks include: (i) OTC derivatives reforms; (ii) the progress made by the Basel Committee on Banking Supervision to strengthen bank capital, leverage, and liquidity; and (iii) cross-border resolution and the Financial Stability Board's (FSB) proposal for an international minimum standard on total loss absorbing capacity (TLAC). Participants also exchanged views on bank structural measures, securitisation, money market funds (MMFs), AIFMs, benchmarks, information sharing for supervisory and enforcement purposes, the implementation of UCITS reforms, and macro-prudential oversight.

FX manipulation investigation widens in US

The continuing investigations in the US regarding FX manipulation, as reported in last week’s Euro Shorts, have uncovered new signs of potential wrongdoing leading to an examination of a wider array of issues. Among the aspects of the Justice Department’s criminal probe is whether bank employees tipped off hedge-fund clients to large FX trades that the banks were planning and that were likely to move markets. The Justice Department’s fraud division also is looking into the practice of “spoofing,” in which traders or brokers submit fake trading data to move markets or confuse clients or competitors. The investigation has so far mostly targeted potential wrongdoing by traders and salespeople in investment banks, but this week extended to UBS’s wealth-management business. In response to the investigations, Jamie Dimon, CEO of JPMorgan remarked this week that banks ‘are under assault’.

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Fears of European property market bubble

According to reports, European investors’ fears of a property market bubble are rising. According to the results of a recent survey published this week, nearly two-thirds of investors said that properties in London, Paris and Milan were overpriced and that the European property market was ‘awash with capital’. According to the survey, sovereign wealth funds, pension funds and Asian insurers were the leading influences on the pricing spiral, as soaring demand far outpaces the assets on sale.

Cummings

Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327

www.cummingslaw.com 16 January 2015