The REGIS-TR RoundUp
The REGIS-TR RoundUp is a hub for regulatory reporting news and views from your leading Trade Repository team and industry guests from across the globe.
The REGIS-TR RoundUp
S10:E13 Fireside chat: Capital markets union and the regulatory outlook for 2025
In this special show recorded live in Madrid, our regular guest Aušrinė Juškevičiūtė, Institutional Relations Management, REGIS-TR, SIX, interviews Pilar Martínez, Head Public Affairs EU & Latin America, BME, SIX. They discuss the new EU capital markets plan, the Draghi report, DORA and more regulatory and legal harmonisation facing market participants and trade repositories in 2025.
This podcast is brought to you by RegistryR, which is a member of the Six Group, and features members of the RegistryR team and special guests expressing their personal opinions, not the opinions of RegistryR as an organization. There is no representation made as to the accuracy or completeness of information in this podcast, and nor should it be taken as legal tax or. Hello and welcome back to the registry art roundup podcast. Yes, we're back with another special episode that was recorded live a little while back at the palacio de la bolsas in madrid.
Speaker 1:Yes, it's just me, andrew Keith Walker, and our producer, manuel Moreno-Garcia, here in the virtual studio to introduce two very special speakers who had a fireside chat at our annual client event focused on the regulatory outlook for the regtech industry, for the derivatives industry and for capital markets, and looking at emerging trends and the challenges facing the Capital Markets Union plans for 2025. Our show is hosted this week by Osrina Yuskeviscuti, and Osrina is joined by Pilar Martinez, who's the head of public affairs for Europe and Latin America at BME6. And together they unpick the threads beyond EMEA refit in terms of the broader regulatory outlook, the challenges that were raised for the EU, for capital markets and debt management in the EU by the Draghi report and the broader macro themes that are going to be shaping 2025. So, without further ado, let's go over to Ozrina Juskiewicz.
Speaker 2:Thank you. Thank you, manuel, for such a nice introduction and hello everyone. So I think we have heard a lot already until now about EMI Refit, uk Refit. So just to let you know, we are not here to talk about EMI Refit or UK EMI Refit. So from our side, what we want to talk with you about is to have a chat, because there is so much more ongoing in Europe and beyond Europe this year and also next year. So maybe just to start with the first topic to be Capital Markets Union, right? So this is the one that you, I know, really closely follow. So there have been reports from Draguleta earlier this year about the future of European Union and future financial markets and they're telling that, well, the first and high priority is to complete CMAU, right, and from your perspective and from your view, do you think what's completed is going to solve all the problems and challenges we have in the financial sector?
Speaker 3:Well, thank you very much. Sure, now we can hear each other. Well, good morning everyone, and thanks a lot for bringing that question. Definitely, draghi and Letta have been something that has been sitting on our desk since April that the first report was released, and your question was super specific. I wish they were the key to finalizing CMU, but it certainly points out to a lot of challenges and a lot of issues that the EU needs to look into if they want to build that capital markets union in the next political cycle. It touches upon elements such as consolidation of infrastructures, supervisory arrangements, bringing retail investors onto the table, which is something that many other places are already looking into, definitely, and so I do believe they are a very good exercise towards pointing to the challenges that the EU needs to look into for the next political cycle.
Speaker 3:However, those challenges need to be fixed somehow with regulation, and that is something that the Commission specifically should be looking into the implications of additional regulation. You know very well our sector is over regulated sometimes. Jesus already mentioned that in their in his opening speech. So, um, that is something for policymakers to keep an eye on. Simplify in existing regulations. Let's also touch on draggy, anyways, but um, to me, what's more important is that the eu analyzes the internal differences, the comparative disadvantages that are created because many of the regulations are not streamlined and are not applied in a harmonized manner. So perhaps that is something that they could look into and definitely considering the relation with third countries, not just with the UK, which might be very close to us, but also with the US and with Switzerland. That's a bit I wish I had the key answer to it.
Speaker 2:I think that was very, very nice, olivia, so thank you very much for that. And well, digging a bit more into the European Union. Well, we had elections right this year around the globe, but also in the European Union. And we had elections right this year around the globe, but also in the European Union. And we have a new commission and, of course, as a next step, we are awaiting their work plan for 2025. Any ideas what we could expect there?
Speaker 3:Well, only last week we had the hearings held at the parliament and we have the full commission already pointed out.
Speaker 3:So I think that's a very good first step to begin with. But, like I said, and I know I'm repeating myself, but the whole element around regulatory burden, around administrative burden for entities to comply with regulation, that is something that the EU, and the Commission particularly, must really look into. What I do believe and it's also touched in Leta's report is that the industry should have a bigger role. Having consultations with the industry, having roundtables, having some sort of private-public collaboration with the entities, can help the Commission understand better the implications of their regulation, what is needed, what is not needed that much, what needs to be done in a different way, and so creating this involvement with the industry, with it'll it'll be something that we will very much um want to see from from this new commission. But, um, we've spoken a lot about regulation before and now, and, although the commission has been on a break for a while, they left a little bit of homework and they left Dora on the table, so I was very much hoping you could explain a little bit on the topic.
Speaker 2:Yeah, definitely. Well, dora, it's a big topic already ongoing for two years that I've been looking very closely. So thanks for these questions. Indeed, dora Digital Operational Resilience Act is going to come into place already next year, so in less than two months they're going to be DORA applicable. Well, the idea of this whole regulation from the European Europe is to enhance the IT security and also to make financial markets and financial entities more resilient.
Speaker 2:Why we have this Zora and why was the need actually of it. And also, we're in the digital age right that there are more and more financial entities that are kind of reliant on their services to the ICT third-party service providers. And when I say dependent or reliant, we are talking about that 80% of the financial entities actually they're using the ICT third-party service providers for their critical services. So being so dependent service providers for their critical services, so being so dependent, this also increases vulnerability to the cyber incidents, also to the operational problems, and I think that could, if not managed actually correctly, could also cause to the other sectors and also influence the bigger economy. And this is what we have been looking already, you know, from the European Commission side and they have seen that well talking in the last five years. There's like around 40% of ICT related incidents that a financial sector has experienced and basically 70% of all the financial entities have at least one significant incident last year. So most of ICT third-party service until now providers. They were not regulated, or not at least in the same framework like most of our financial entities are.
Speaker 2:So, due to these reasons, there was DORA created two years ago. Well, two years ago it came into force and Palladia is in the purposes, of course, to ensure and to increase the IT security in the financial sector to make sure that financial entities can withstand and also recover from the cyber incidents. There is also harmonization of the regulations that you also mentioned before with the old idea to harmonize the requirements across the Europe and the member states and also basically to centralize also the role of the supervisory authorities. So this would be the purpose and actually it's an unprecedented regulation in financial sector in terms of how big it is Like really it affects all financial entities. So we're talking that all types of financial entities are under the scope of DORA, so banks, of course, trade repos nor is that registered we also are there and also ICT third-party service providers that are going to be assigned as critical. So we're talking about more than 22,000 firms in Europe that are going to be affected by this regulation. So, yeah, it's really big and it's coming in less than two months.
Speaker 3:Okay, that sounds challenging. Definitely those numbers are huge. Is there any framework, any structure beneath it? Because I'm assuming for such a big file there must be a very solid infrastructure behind.
Speaker 2:Yeah thanks God there is. So there we have the five main pillars, five key areas that you can reach through the level one legislation and also the technical standards you can reach, you know, through the level one legislation and also the technical standards. You can go into more in details. So just quickly to overlook. So we have ICT risk management, of course. So it's like lots of principles and requirements on ICT risk management framework, including also the governments and what management board needs to do and what business continue plans need to to entail what would be internal controls. Then we have also ICT risk management framework.
Speaker 2:So the idea is to harmonize how the incidents are going to be reported on the DORA. So not all the financial entities so far are reporting incidents. So it's going to be harmonized. We're going to have the templates format for everyone is going to be the same and also the criteria, how we have to report. Then, of course, it's about the operational resilience testing. So this is also other pillar. So they establishes, basically DORA establishes, like the basic testing that all financial entities will have to do, and then also it's going to be advanced testing for some entities that will be of huge significance, let's say so the authorities will need to come to them and will need to inform that they will need to do specific TLPT testing.
Speaker 2:Then we're looking at managing of ICT third-party risk. And when I'm talking about managing, so what DORA establishes, so all the financial well, basically responsibility it pulls under financial entity to make sure you know that you manage the contracts correctly of your ICT third-party service providers, that you have all the provisions in place, that you relate and monitor the risk. And this is also what is like really big pillar that we are working. We're going to have a register of information where we have to put all the contracts in there and based on that, the supervisory authorities and ESAS will designate the critical service providers and they want to say which are the critical service providers in Europe and we're going to see the list of it. But we're talking about big players. I guess it's going to be Amazon, google, microsoft, the ones that they really want to kind of control a bit. And then we have information sharing, which is voluntary, so to have information shared between the financial entities on cyber threats and issues between the financial entities on cyber threats and issues.
Speaker 2:So five main pillars, lots of also technical standards for each of the pillars, seven already approved one. We are still waiting because there was a dispute between the commission and ESA regarding the use of LEI. But yeah, we are working on it Project established on our side. We are blood circles with esma on the workshops and it's really, it's really big and it's not just actually an european union that's looking well. We have torah, but in switzerland we also have operational resonance framework. We also have in the united kingdom stand differently, but this is the topic that is ongoing and definitely next year is going to one of the biggest, biggest topic after f it definitely sounds like a lot of work.
Speaker 3:so, um, I'm sending you all um our best energy to cope with it, but I think that's not the only piece that was left from the last commission. And, um, I wanted to ask you about SFTR. Is it SFTR 2.0, right, sftr 2.0. Sftr 2.0. That's also an effort. Sftr? Yeah, exactly, but that has been laying around a lot as well, and I've heard some rumors, but perhaps you have a bit more insight onto it.
Speaker 2:Yeah, so, yeah, you're right. So I guess there are more rumors so far, but it was mentioned actually in one of the commission's report it's called macro prudential framework for non-banking financial intermediaries that they're expecting the benefit of a CFTR. So CFTR 2.0 in 2025 actually, and even to have the consultation paper this year. However, so far it's just rumors. We haven't seen anything there. Also, with the regulators that we have talked, we're still not sure if that is coming At some point. Of course it's going to come, because FTR came to force in 2016, and we started reporting in 2020, and we already have a mirror fit. So this is coming, but we don't know yet when.
Speaker 2:But we can also make some assumptions actually what we could expect from this FTR 2.0. So, first of all, it's going to be probably expanded scope, so we're going to have also non-banking intermediaries that will have to report sfts. Look at what happened with amir effort. We could also expect there's going to be new fields added, although sftr already has a lot like. Yeah, I know it's just like adding any more fields to be reported, but yeah, there should be additional reporting fields.
Speaker 2:I wrote it to enhance data quality and ensure accurate monitoring. Well, that could be like fields such as effective dates, intra-group identifier, executing agent field and etc. And of course, I would imagine the FTR 2.0 would take into account also operational resilience and cybersecurity factors, because it also would be aligned with TORA. What else security factors, because it's it's also would be aligned with with torah and what else. Well, esg is very big right now and also affecting more and more financial regulations, so it should be also foreseen somehow to be reflected in sftr, ref it and giving them actually also the scandals we have in euro with the taxes. So there is a rumor that it's also be somehow related with the tax compliance. So I think that's what we could expect. Again, still, the calculations we don't know. Even if it comes, you know the revision soon. I don't expect in two, three years that we're going to have it. But you work with the commission more you know, work those corridors.
Speaker 3:So whenever you hear something, so just shout to us so that we could be preferred and you know we'll be the first to know about it. Well, you can be sure, if I hear anything, I'll let you know right away, because that sounds also like a lot of work. Yeah, that's, that's gonna be big and okay.
Speaker 2:So actually well before, you mentioned also about the cooperation of third countries and how to support that. You mentioned UK, you mentioned Switzerland, united States. So in your opinion, if there is no alignment with that third country, so there is no cooperation, how it could be an obstacle for EU and also for economic growth?
Speaker 3:Well, I think for the past two CMU action plans, the Commission and the EU as a whole has become aware of the need of being integrated with the rest of the world. It's not just the EU on their own anymore, but we need to interact with other players and we have a number of stakeholders that we need to live up to, namely our clients, our issuers and our investors. So it is clear that the EU cannot afford any longer to move in isolation and in this sense, for example, last week we read about the report from ESMA about the long awaited shift to 2 plus 1, the shortening of the settlement cycle, and they already came into agreement with a date it's going to be end of 2027, which pairs very well with the UK, who had announced already in the task force their aim to shift also by end of 2027, and also with Switzerland. So I think this is a great first step into addressing the relation with third countries and into placing the EU as a real key stakeholder in the international environment. But perhaps not just on T plus one, but on the rest of topics and on the rest of regulations that we have, there's two elements that I think need to be taken into account by our policymakers.
Speaker 3:And number one is that the EU is not the US. I know the policymakers look to the US, which is fair and in many cases, is the way to look at them towards. But because of the nature of the union and because of the aims that it has, it's no longer just capital markets, unions, capital investments and savings, for example. We cannot replicate every single thing that comes into the US, that comes from the US. We need to make it our own and it needs to stem from the very own nature of the EU. So that's perhaps something that I would very much like to see in our strategy with the countries from now on.
Speaker 3:And the second element and I know I touched briefly upon this before, but I do think it will make a difference is addressing the comparative disadvantages that we have in the union because of the different application of regimes and I'm talking mainly taxation, I'm talking solvency and I'm talking company law, for example which they remain within the sovereignty of the different member states. But applications that diverge very much from member to member can create these pockets of comparative disadvantages which, in the end, when you look at the union from the outside, it makes it less competitive as a bloc. So I do think that is something that needs to be looked into when we think about competition with countries and into creating something that is an investor-friendly environment for the next cycle. Let's put it that way. But if we talk about third countries and about refits again, I know that it seems to be like your favorite topic lately I wanted to ask you about FinFrag Review, because that's also something on the third country scope and I think you know a bit about that.
Speaker 2:Yes, true. So thanks for the question. Yeah, refit, refit, everywhere we can hear of it. So we have the FinFRAC review. Actually, well, because we also affected, given that we have our services providing in Switzerland too. So there's a FinFRAC review. That started our consultation paper actually this summer and it's already. Well, we already have experts, we're working together with Essex on this and, yeah, so the refit again on FinFRAC, what they're trying to do so increase transparency, enhance also legal certainty.
Speaker 2:There is also the idea to include, like a harmonization we're talking again the international standards also to be alignment and et cetera. So I think this is also we could see that's within FRAC as well. There's going to be also updates to capital requirements for financial market infrastructures. So that I intended to enhance basically stability and resilience. What is interesting also that there was exemption for small non-financial counterparties again delay. Well, basically, there's going to be the reporting for them only in 2028, from 1st of January. So this was also announced by the Federal Council of Switzerland. There's going to be centralized reporting by FINMA. So they want to also increase how they're going to look at data, how data quality, how they're going to basically ensure also utility all the processes and yeah, so I think also they want to make it easier for foreign supervisory authorities to access Swiss trade repositories. So the idea is to improve the identification of global stability risks and derivative markets.
Speaker 2:But if you look at the FinFRAC review, so same as with the others, so they want to stay competitive, you know, in Switzerland, with the market and, sure, aligned with international standards and etc. So so far it has been level one regulation review and so it's from what I have here and insights that I have, so it's going to be probably in summer and that next year that we're going to have like a first dispatch, then it's going to go to parliamentary process, then it's going to be revision of amendments on ordinance, so it's like technical standards in here. So we're going to have that, which we're going to look much more closer from registrar side, because there, you know, the devil's is in the details. So we're gonna, we're gonna look there, but the whole file and everything we don't expect to have finalized until 2027 or even 2028. So but yeah, we are there, we are following up, so we have refits on this side. Sfcr 2.0 is coming, uh, dora, so lots of there, yeah well, since I don't have enough on your plate already and, I think, over to finalize.
Speaker 2:so we talked about uh here europe and third parties, uh, third countries. Here europe touched a bit of united states and I mentioned before we had big bank of elections, not just around the eu, but also the? Uh in the united states. You know what's talking about and I think everyone was actually looking closer to these elections, but we are fans of the, so I guess you didn't sleep overnight, as I decided, definitely. So I wanted to ask you, in terms of the result of the elections and how it could affect the financial sector of the EU. I know Trump has his own program for financial sector, so just to know, let's speculate and what you have here, what are your views? So?
Speaker 3:that's a very good approach. Let's speculate on that a little bit. I'm pretty sure many of the minds in this room were also awake that night seeing what was going to happen. I'm not sure it was entirely a surprise for many, but definitely it's going to be a major political turn for next year. Trump is taking office early in January, so, as you mentioned, we can only speculate. There is still no big name. There are names sounding around, but we still do not have the roster.
Speaker 3:But nevertheless, and because of what we have heard in the media lately, we can definitely expect some sort of shift towards protectionism from the US. That can mean tariffs. There can be also restrictions to the provision of financial services in the US. So this is something that definitely the EU needs to take into account and also, if we look at the bigger geopolitical scenario, it's very important that the Commission and the Parliament start looking into building that autonomous, strategic autonomy that they have been also working on in the past action plans. Can this complicate the relation with the EU providers or financial services?
Speaker 3:I do think we need to keep an eye on, for example, in more innovative industries such as, for example, digital assets or financial technology, where the US can be a bit more restrictive and therefore impact our businesses as we know them nowadays.
Speaker 3:But what is also true is that the industry has lined up for a long, long time now in different forums not just the political ones, but I'm talking, for example, about IOSCO, or I'm talking about the World Federation of Exchanges, where the industry builds those best practices from them for them, the industry builds those best practices from them for them.
Speaker 3:So that can also be a great place to try to streamline those actions and and keep them as harmonized as possible, and that's, um, in all honesty, what I would like to see uh to to maintain that relation with the us, as, as we know it um for now. But there is no doubt that the eu, uh, the EU needs to look into its own challenges and, like I mentioned before, onto those pockets of competitive disadvantage, try to address those as early as possible in order to remain a competitive player, not just with the US, by the way, but with the rest of the world, because we're seeing a rise in Asia and we're seeing other places in the globe moving South America as well. So it's definitely going to be a turning point, but I do believe that with the next CMU option plan. Hopefully we'll be able to remain competitive.
Speaker 2:Hopefully. Thank you very much, Filara. Very good answer for that.
Speaker 3:Thanks to you and it was really nice chatting. Actually, I think we will also join the lunch, so if there's any question, perhaps we can address that later.
Speaker 2:Yeah, and during the event as well, so I hope you enjoyed our chat and thank you very much, everyone for listening. Thank you.
Speaker 1:Okay, well, that's it for this episode and huge thank you to. Well, that's it for this episode. And huge thank you to Pilar and Osrina there, and, frankly, I'm going to be out of a job if this carries on Manuel. So he's shaking his head at me in the virtual studio producers booth. Okay, fine, I'm going to move on. Thanks for that, manuel. Okay, well, in that case, join us on our linkedin page that's linkedincom slash company, slash register, hyphen tr, where you can connect with osrina and with pilar and, of course, with everyone else here in the show, with manuel, with myself, uh, with john kernan, uh, nick bruce, uh, paulo lopez, uh, lara rodriguez, uh, plus our many special guests, and we'll be back in March. In the meantime, bye-bye.