SOFR, leverage and life after London

The week on, July 14-20, 2018

7 days montage 200718

First SOFR swaps trade as banks test new benchmark

First over-the-counter trades include two basis swaps and an OIS trade, with JP Morgan thought to be a counterparty

Shut the window: EU Parliament tackles leverage loophole

EU banks may have to calculate leverage ratios daily, potentially hitting their repo market share

Life after London: AMF urges revived capital markets union

 French regulator wants supervisory convergence, examines Mifid II impact on market transparency


COMMENTARY: Living without EU

There are 252 days to go until the March 29 deadline for Brexit, and it’s safe to say no-one on any side of the question expected or wanted to be in the position the UK is now in. The UK government is still struggling to produce a coherent negotiating position that can attract the support of its own members, let alone its counterparts at the EU, and the uncertainty over the end-state is now reaching crippling levels.

It is possible the process will be relatively smooth, with the UK going through a years-long transition into a close relationship with the EU, perhaps even with some sort of agreement in place allowing finance and the rest of the services sector to keep operating more or less without noticing the bump (though it is notable that this hasn’t rated a significant mention in any of the UK’s negotiating positions so far). It is also possible the UK will crash chaotically out of the EU with no agreement in place, with potentially disastrous consequences.

No-one knows. But regulators as well as financial institutions are now preparing for what a few years ago would have seemed unthinkable: a life after London. AMF policy head Natasha Cazenave (quoted below) is focusing on building capacity in the remaining EU nations to take up the slack from London’s departure – a position that implicitly assumes London will lose much of its EU business after Brexit.

Building clearing capacity will be one part of it; another will be expanding AMF and other EU national regulators to handle their increased workload. But there could also be room for progress – with the UK out of the picture, the EU could move more quickly towards a genuine capital markets union and closer convergence on supervision.

Finding a bright side, however, does not mean there is no dark side; AMF, like everyone else in the EU financial industry, will still have hard work ahead of it to deal with whatever Brexit arrangement finally emerges. But, as the process goes on over the next several years, perhaps the best we can hope for is the emergence of a few more small unexpected benefits.



Breakdowns in internal governance were the most cited reason for failures of large European insurers from 1999 to 2016. The European Insurance and Occupational Pensions Authority said that at troubled large insurers, internal governance and control risks were the primary cause of failures or near failures in 14% of cases. Next came managerial and staff competence risks, and the underestimating of reserves needed to meet policyholder obligations, at 13% each.



“Everybody was satisfied with the large financial centre that was serving the entire zone, but now it will be outside, and we have to think about what it means to have a region that is multipolar and where you will have a number of financial centres – there isn’t going to be an equivalent of London tomorrow” – Natasha Cazenave, AMF

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