The Financial Conduct Authority (FCA) has published final rules banning the sale of derivatives and exchange traded notes (ETNs) that reference certain types of cryptoassests to retail consumers. The FCA considers these products to be ill-suited for retail consumers due to the harm they pose. These products cannot be reliably valued by retail consumers because of the: 

inherent nature of the underlying assets, which means they have no reliable basis for valuation prevalence of market abuse and financial crime in the secondary market (eg cyber theft) extreme volatility in cryptoasset price movements inadequate understanding of cryptoassets by retail consumers lack of legitimate investment need for retail consumers to invest in these products  

Continue reading…

The risk of a rapid contraction of the credit insurance business following Covid-19 has led the European Commission to take similar initiatives as in the financial crisis in 2008. Firstly, on 19 March 2020 the European Commission adopted a “Temporary Framework for State aid measure to support the economy in the current Covid-19 outbreak” (Temporary Framework), which enables Member States to adopt temporary measures, including schemes to support export and trade in general. Measures taken under the Temporary Framework require individual approval from the European Commission. Secondly, on 28 March 2020 the European Commission published Communication C/2020/2044 that considers all commercial and political short term export as temporary non-marketable until 31 December 2020. This allowed state insurers to temporarily cover all short-term risks without requiring prior approval from the European Commission. The coverage provided following that Communication shall comply with a set of requirements that ensure that no advantage is passed on to exporters. Continue reading…

by Ahsan Habib

Criminals have long been coming up with creative and innovative ways to launder their illicit funds. When they started exploiting video games to satisfy their bad intentions, we the Risk Managers thought, maybe this is their last unconventional way of wrongdoing. But our thought has been proven wrong. In reality, bad actors did not stop their ‘winning race’. Yes, I am pointing at video games and the chocolate industry. Bad actors did not even spare these innocent products; rather to some extents they put question marks on the faces of online video games and chocolates. Continue reading…

The European Central Bank (ECB) recently published a comprehensive report on the possible issuance of a digital euro, prepared by the Eurosystem High-Level Task Force on central bank digital currency (CBDC) and approved by the Governing Council. A digital euro would be an electronic form of central bank money accessible to all citizens and firms – like banknotes, but in a digital form – to make their daily payments in a fast, easy and secure way. It would complement cash, not replace it. The Eurosystem will continue to issue cash in any case. Continue reading…

by Lieve Lowet

This is the final part of a series of three articles about my investigation into coal, climate change and capital. Ending exposure to coal can benefit (re)insurers in three ways, Moody’s suggested in its 2020 report: they will less likely have to pay damages and legal fees for climate litigation targeting their clients, they can avoid troubled customers who may be tempted to cut corners on maintenance and they can protect themselves from the risk that their investments become “stranded”. Indeed, a lot of attention of (re)insurers and regulators has been going and is currently still going to the investment side (see for example (ironically) Lloyd’s in its 2017 Stranded Assets Report, part of its Emerging Risk series, and Europe’s sustainability package of May 2018).   Continue reading…

by Massimo Balducci

The amount of resources to be mobilised by the EU Resilience and Recovery Fund (and connected funds) is huge. It is comparable with the amount of resources triggered off by the Marshall Plan after World War II. Compared with the GDP in some countries, the EU will invest more resources than the Marshall Plan did. In the case of Italy, the Marshall Plan invested about 12% of the Italian GDP. The EU will invest around 19% of the Italian GDP in Italy. Will the EU investment have an impact comparable with the one of the Marshall Plan? Or will it mostly be a positive impact and have negative unanticipated consequences that outweighs any positive outcome? Compliance shall possibly be called upon to play a key role to curb any negative unintended outcome. Here, the experience of the Marshall Plan can provide us with a useful frame of reference. A negative (i.e. what should be done differently in comparison to the Marshall Plan) point of reference and a positive one (i.e. what the EU should try to do following the Marshall Plan).   Continue reading…

by Lieve Lowet

This is the second part in a series of three articles written by me, which focuses on coal, climate change and capital. 

The recent findings of the Coal Policy Tool of Reclaim Finance reveal that indeed, as Sweeney said, managing climate-related risk remains a novel process for many. If insurers and reinsurers want to be part of the solution, more serious action is required beyond divestments and a few pioneers. If a sector is not insurable, it is not bankable. And if it is not bankable, most coal projects cannot be financed and built. The Indian Adani Group’s Carmichael Australian coal mine controversy is a warning. Whereas the European insurers and reinsurers are roughly and broadly speaking ahead of their American, Korean or Japanese counterpart across the five criteria Reclaim Finance examined in underwriting, and the best practice case is a large European insurer, there is still a lot of work to be done by insurers and reinsurers alike to reduce capacity meaningfully and to avoid the liability risk. Continue reading…

by Lieve Lowet

This blog is the first of a series of three articles written by me about coal, climate change and capital. The articles will be published on three consecutive days. 

When I googled “how relevant is coal for climate change”, the first answer which popped up was “coal is the single biggest contributor to anthropogenic climate change. The burning of coal is responsible for 46% of carbon dioxide emissions worldwide and accounts for 72% of total greenhouse gas (GHG) emissions from the electricity sector.” Phasing out coal from the electricity sector is the single most important step to get in line with the 1.5°C reduction target as laid down in Article 2 of the Paris Agreement. In that context, do insurers and reinsurers want to be part of the problem or part of the solution? Continue reading…

Watching speeches is an unusual experience when we’re limited to communicating virtually. It is strange to give them in this way, too. Especially as in this case it is my last opportunity before I step down as interim chief executive of the FCA. But the next few minutes do allow me to take stock and also offer some brief thoughts on the future of regulation. First of all, what lessons can we take from Covid-19 so far? In terms of society, technology and the manner in which we regulate?

Second, how the FCA itself might change to meet some of these challenges, and what constants may remain? And third, given the backdrop of the UK’s exit from the EU, what’s the kind of regulation we need?

Continue reading…

Financial markets largely recovered from March’s acute stress, according to the third BIS Quarterly Review1 of 2020.This was supported by both monetary and fiscal policy, and investor sentiment arising from better than expected economic indicators in the initial aftermath of the lockdown phase of the pandemic. However, the Review indicates that the economy’s upturn has been uneven and corporate balance sheets remain fragile. The associated concern of stretched valuations being disconnected from underlying economic prospects, most notably in some segments of the equity and corporate credit markets, has since been reflected in the recent stock market sell-off.  Continue reading…