by Michel Klompmaker

According to the chairman of the SOBI Foundation, Pieter Lakeman, De Nederlandsche Bank (DNB) is forcing pension funds to use incorrect actuarial interest rates. For their annual reports for 2021, the pension funds were obliged to use an actuarial interest rate of approximately 0.57%. If 4% had been used as the actuarial interest rate, which was done until 2007, the pension provisions would have been approximately 60% smaller at the end of 2021. It is clear that this is not a matter of several thousand euros. For example, the pension provision of PMT, the third largest pension fund, was over 95 billion euros on 31 December 2021. At an actuarial interest rate of 4%, this would be more than 55 billion euros less. In fact, this means that the equity capital is then understated by more than EUR 55 billion in the balance sheet. At an actuarial interest rate of 5%, the provision would even be approximately 70% smaller and PMT’s equity would amount to 65 billion euros. For the largest pension fund, the ABP, the equity is shown in the balance sheet as 54 billion euros via the actuarial interest rate prescribed by DNB, while in reality, with a somewhat more normal actuarial interest rate of 4%, it amounts to more than 370 billion.  Continue reading…

The European Central Bank (ECB) and the European Systemic Risk Board (ESRB) has on 26 July published a joint report on how climate shocks can affect the European financial system. The findings show that climate risks can quickly spread and harm companies and banks alike. The report adds further evidence on the systemic nature of climate risks and provides a foundation for a macroprudential policy response. The report identifies several amplifiers of climate risk across the financial system. Transition risks may be magnified because of economic and financial linkages between and across banks and companies. For example, a surge in carbon prices could increase the likelihood that the default of one company leads to the default of another. While this particularly applies to high-carbon companies, it could also affect their less carbon-intensive counterparties. Continue reading…

The European Union faces the risk of further gas supply cuts from Russia, due to the Kremlin’s weaponisation of gas exports, with almost half of our Member States already affected by reduced deliveries. Taking action now can reduce both the risk and the costs for Europe in case of further or full disruption, strengthening European energy resilience. The Commission has therefore on 20 July proposed a new legislative tool and a European Gas Demand Reduction Plan, to reduce gas use in Europe by 15% until next spring. All consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas. The Commission will also accelerate work on supply diversification, including joint purchasing of gas to strengthen the EU’s possibility of sourcing alternative gas deliveries. Continue reading…

In its Annual Report published on 19 July, the organisation has set out how it has worked over the past 12 months to meet its objectives of protecting consumers, enhancing market integrity and promoting competition, as it becomes a more innovative, assertive and adaptive regulator. Over the period, the FCA changed insurance rules to stop firms overcharging loyal customers. Millions of customers are now being offered better deals, with the average cost of renewing motor insurance down £55. The FCA also carried out its first ever criminal prosecution under anti-money laundering legislation and worked on an updated listing regime to ensure that the UK remains a trusted and attractive place to list companies.  Continue reading…

The Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO) has on 6 July published final guidance confirming that stablecoin arrangements should observe international standards for payment, clearing and settlement systems. Sir Jon Cunliffe, Chair of the CPMI and Deputy Governor for Financial Stability at the Bank of England stated: “Recent developments in the cryptoasset market have again brought urgency for authorities to address the potential risks posed by cryptoassets, including stablecoins more broadly. The recent market disruptions, while costly for many, were not systemic events. But they underline the speed with which confidence can be eroded and how volatile cryptoassets can be. Such events could become systemic in the future, especially given the strong growth in these markets and the increasing linkages between cryptoassets and with traditional finance.”   Continue reading…

Kuroda Haruhiko, Governor of the Bank of Japan, recently made a statement at the Committee meeting on Financial Affairs, House of Councillors, Sangiin. The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. He first explained recent economic and financial developments. Japan’s economy has picked up as a trend, although some weakness has been seen in part, mainly due to the impact of the novel coronavirus (COVID-19) and a rise in commodity prices. Overseas economies have recovered on the whole, albeit with variation across countries and regions. In this situation, exports and industrial production have continued to increase as a trend, despite the remaining effects of supply-side constraints. Continue reading…

The Financial Stability Board (FSB) recently published for public feedback an interim report on the approach for monitoring progress toward meeting the targets for the G20 Roadmap for Enhancing Cross-border Payments. The report provides preliminary recommendations about key performance indicators (KPIs) that could be used to monitor progress over time and identifies existing and potential sources of data for calculating those KPIs. In October 2021, the FSB set quantitative global targets for addressing the four challenges faced by cross-border payments (cost, speed, access, transparency) as a key foundational step in the G20 Roadmap. These targets were set for each of the three main segments of the market (wholesale, retail and remittances). Continue reading…

HM Treasury has recently announced the appointment of Ashley Alder as the new Chair of the Financial Conduct Authority (FCA). Ashley is currently Chief Executive Officer of the Securities and Futures Commission (SFC) in Hong Kong, a role he has held since 2011. Ashley also chairs the Board of the International Organisation of Securities Commissions (IOSCO) and sits on the Financial Stability Board’s Plenary and its Steering Committee. Ashley began his career as a lawyer in London in 1984 and practised in Hong Kong for more than 20 years. He was Executive Director of the SFC’s Corporate Finance Division from 2001 to 2004, before returning to private practice at Herbert Smith LLP, a law firm, as Head of Asia. Continue reading…