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25Jul2024

Decoding the AMF Study on Bond Market Transparency

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Decoding the AMF Study on Bond Market Transparency (July 2024)

Introduction and Context

In February 2024, the Council of the European Union adopted a significant revision of the MiFIR Regulation and the MiFID II Directive, which govern investment services and financial market activities within the European Union. This revision aims to enhance the transparency of transactions in bond markets by introducing consolidated data publication systems, known as “consolidated tapes” (CT). These systems will provide essential information on transaction prices and volumes, accessible to all investors.

Objectives and Importance of Consolidated Tapes

The CTs are part of the Capital Markets Union (CMU) framework and aim to strengthen the integration of European financial markets. They will enable better price discovery through high-quality, near-real-time market data. However, the regulation revision also introduces standardized publication delays for bond transactions, removing the discretionary power of national authorities, which led to divergent practices and limited transparency.

Study Methodology

This study proposes a methodology for calibrating the thresholds for publication delays based on transaction data analysis. The goal is to balance market information access with maintaining market liquidity and efficiency. Publication delays are necessary to allow market participants to cover their positions before transactions are disclosed.

Transaction Data Analysis

The study focuses on corporate bonds and uses transaction data received by the AMF. This data is processed to eliminate duplicates and anomalies. The majority of transactions in French bonds involve corporate bonds, although sovereign bonds dominate in terms of traded volumes.

Current Post-Trade Transparency

The MiFIR regulation, in effect since 2018, imposes post-trade transparency obligations for various categories of financial instruments, including bonds. Transactions must be published quickly, but publication delays are possible under certain criteria (bond liquidity, transaction size). Currently, a large proportion of corporate bonds are considered illiquid, making these transactions eligible for publication delays.

New Transparency Criteria

The revision of MiFID/MiFIR introduces a new definition of liquidity based on the issuance size of bonds and proposes new criteria for publication delays. Transactions will be classified into five categories according to bond liquidity and size, with publication delays ranging from real-time to four weeks.

Calibration of Thresholds

The calibration of new publication delay thresholds aims to maximize transparency without harming market liquidity. The proposed thresholds are based on the time needed for the market to absorb a transaction of a given size. Analysis results indicate that current criteria are too permissive and do not effectively support the goal of an efficient CT. Redefining these criteria is therefore crucial for better transparency.

Conclusion

This AMF study highlights the challenges and methods of calibrating publication delays in the bond market. The new transparency rules, currently being defined, are essential to improve the visibility and efficiency of European financial markets while maintaining their liquidity.

24Jul2024

The Data Office and the Chief Data Officer: Roles, Responsibilities

Posted By: DEVLHON Consulting

The Data Office and the Chief Data Officer: Roles, Responsibilities, and Organization

In the banking sector, the Data Office and the role of the Chief Data Officer (CDO) have become essential for effective data management. With the volume of data generated and used by companies in the financial sector, it is crucial to have dedicated structures and leaders to oversee and maximize the value of these digital assets. This article explores the key roles and responsibilities of the Data Office and the CDO, as well as the implications of their organization within the company.

Key Roles and Responsibilities of the CDO

The Chief Data Officer (CDO) is responsible for the overall data management strategy within the company. One of the main roles of the CDO is to define data strategies aligned with business objectives. This includes creating data management policies and standards, as well as overseeing their implementation across the organization. The CDO must also promote a data-driven culture, where decisions are based on reliable and accurate data. This involves working closely with other departments to ensure consistent and effective use of data.

Another crucial aspect of the CDO’s role is overseeing data governance. This includes managing data quality, security, and regulatory compliance. The CDO must ensure that the company’s data is protected against cyber threats and complies with applicable laws and regulations. Additionally, the CDO is responsible for valuing data by using advanced analytics techniques to generate actionable insights that can help the company improve its operations and create new market opportunities.

Functions of the Data Office

The Data Office is the operational entity that supports the CDO in implementing data management strategies. Its functions include managing data quality, ensuring that data is accurate, complete, and up-to-date. The Data Office also works on data security and compliance, ensuring that sensitive information is protected and that the company’s practices comply with current regulations.

Another key role of the Data Office is data analysis and valuation. Using analytical tools and techniques, the Data Office transforms raw data into useful information that can be used to improve decision-making and optimize company performance. The Data Office also collaborates with various departments to ensure that data is accessible and usable by those who need it.

Organization: Integrated Data Office within IT or Independent?

One of the major questions concerning the Data Office is whether it should be integrated into the Information Systems Department (IT) or remain independent. There are advantages and disadvantages to each approach.

Integrating the Data Office into IT can facilitate coordination between technical and data management teams. This can enable better alignment of technological infrastructures with data management needs. However, it may also limit the independence and influence of the CDO, as they might be perceived as subordinate to the CIO (Chief Information Officer).

On the other hand, an independent Data Office can offer more flexibility and autonomy to the CDO to carry out their data strategies. This also strengthens the strategic position of the CDO within the company. However, this independence can pose challenges in terms of coordination and integration with existing systems and infrastructures managed by IT.

Conclusion

The role of the Chief Data Officer and the function of the Data Office are essential for effective data management in a bank or financial institution. By defining robust data strategies, overseeing data governance, and promoting a data-driven culture, the CDO and the Data Office can help companies maximize the value of their data. Whether the Data Office is integrated into IT or remains independent depends on the specifics of each company, but it is clear that the structure and organization of the Data Office have a significant impact on efficiency and innovation. In a sector where data plays a crucial role, the CDO and the Data Office are indispensable pillars for long-term success.

19Jul2024

The Race to Prepare for DORA

Posted By: DEVLHON Consulting

New European Resilience Regime: The Race to Prepare for DORA

 Introduction

The rapid digitalization of the financial sector has brought numerous benefits, but it has also exposed companies to increased technological risks such as cyberattacks, system outages, and failures in information and communication technologies (ICT). To strengthen the resilience of financial institutions (FIs) against these threats, the European Union has introduced the Digital Operational Resilience Act, known as DORA. As DORA’s enforcement date approaches, financial institutions and their ICT service providers must intensify their efforts to comply with this new regulation.

 The Necessity of DORA

DORA aims to establish rigorous requirements to protect the critical business processes of financial institutions in Europe. It encompasses several essential aspects, including:

ICT Risk Management: Developing an internal ICT risk management framework, including a strategy, policies, and appropriate procedures.

ICT Incident Management and Reporting: Implementing robust processes to manage and report incidents and cyber threats.

Operational Resilience Testing: Adopting a risk-based approach for resilience testing, including physical tests, application tests, and threat-led penetration testing.

Third-Party Risk Management: Establishing a risk management framework for third-party ICT service providers.

Information Sharing: Facilitating the sharing of information and intelligence on cyber threats among financial institutions.

 Progress and Challenges in Implementing DORA

According to a survey conducted by McKinsey, although most financial institutions have initiated the process of complying with DORA, many remain behind schedule. Several challenges persist, including:

Limited Clarity on the Scope of Requirements: Institutions struggle to precisely define critical functions and critical third-party ICT providers.

Uncertainty on Implementation Timeline: The finalization of regulatory technical standards (RTS) is expected by July 2024, making it difficult to plan and execute compliance programs.

 Example of Successful Implementation

A major European financial institution recently completed a significant technological risk remediation program and quickly refocused its efforts to comply with DORA. By rethinking its DORA program with specific activity groups and reorganizing its governance, the institution successfully created a culture of technological risk management throughout the organization. This strategic, risk-based approach has positioned the institution favorably compared to its peers.

 Financial Implications

Compliance with DORA represents a considerable investment for financial institutions. Estimates for the full implementation costs range between 5 and 15 million euros for strategy, planning, and program orchestration, with total costs reaching up to 100 million euros for large institutions.

 Conclusion

With the January 2025 deadline approaching, European financial institutions must accelerate their efforts to comply with DORA. Success lies in a structured and holistic approach, integrating technological risk management as a crucial driver of business value. Institutions must prepare for this transition to ensure robust operational resilience and protect their critical processes against digital threats.

18Jul2024

Mergers and Acquisitions Market Recovery: Forecasts and Perspectives

Posted By: DEVLHON Consulting

DEVLHON Consulting decrypt : Mergers and Acquisitions Market Recovery: Forecasts and Perspectives

 A Promising Start of the Year Followed by Uncertainties

The high expectations for a resurgence in mergers and acquisitions (M&A) activity in January quickly gave way to rising uncertainties. This climate led to a significant decrease in M&A transactions in the first half of 2024. What are the causes of this uncertain situation, and more importantly, how quickly can it dissipate? We have identified key macroeconomic factors and market anomalies that are essential for restoring confidence and fostering a rebound in M&A activity.

 An Inevitable but Uneven Recovery Across Sectors

It is certain that M&A activity will rebound, although this rebound will be faster in some sectors than in others. The need to conduct transactions remains strong despite the uncertainty of the timeline. Every month without transactions increases the pressure on the economic and strategic fundamentals underpinning these deals. The low M&A activity over the past two and a half years has not met the demand, particularly in the private equity (PE) sector. Moreover, companies are turning to M&A to accelerate their growth and reinvent themselves in a dynamic environment marked by innovations such as artificial intelligence (AI).

 Growing Pressure to Sell

Many portfolio companies are ready to be sold. At the beginning of the year, PE funds held over 27,000 portfolio companies worldwide, about half of which have been held for over four years, reaching the expected holding period before an exit. The pressure to sell increases over time, especially as investors demand returns on investments.

 Companies and M&A

Companies are focusing on M&A to grow and transform in an uncertain environment. Well-thought-out M&A strategies allow for optimizing asset portfolios by acquiring appropriate capabilities, talents, and technologies or by divesting non-strategic assets.

 The Role of AI in M&A

AI, especially generative AI, is a major catalyst for transactions. It disrupts businesses and sectors, creating cost savings and opening up new revenue streams. Companies must reevaluate their strategies in the face of this technological wave, which could lead to mergers and acquisitions, partnerships, alliances, and other innovative relationships.

 The Need for External Growth

Macroeconomic conditions and monetary policies create an environment of low economic growth. To overcome this, companies can turn to M&A and implement external growth strategies.

 M&A Market Outlook and Realities

In January, the outlook was promising with stable interest rates. However, the persistence of high rates dampened this initial momentum. In the first half of 2024, transaction volume fell by 14% compared to the second half of 2023, although transaction value was maintained thanks to mega-deals in the technology and energy sectors.

Transactions involving financial sponsors decreased by 18%, while corporate transactions fell by 12%. Large transactions in the technology and energy sectors helped maintain transaction value.

 Preparing for a Recovery

Uncertainty factors such as interest rates, high valuations, political elections, and geopolitical tensions continue to influence the market. However, positive signs like increased seller activity and the preparation of new transactions indicate a possible recovery.

 Conclusion

Despite the current uncertainty, preparation and restoring confidence are essential for the M&A market recovery. Actors must be ready to act quickly as soon as the context permits. The strategic need for mergers and acquisitions is imperative, and companies must remain vigilant and ready to seize opportunities when conditions improve.

 

 

Sources : https://www.pwc.fr/fr/publications/fusions-acquisitions/global-manda-industry-trends-2024.html?utm_source=emailing&utm_campaign=FR_FY24_Deals_M&A%20Mid%20Year&utm_term=CTA

17Jul2024

The Importance of Master Data Management for Financial Sector Companies

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The Importance of Master Data Management (MDM) for Financial Sector Companies

Master Data Management (MDM) is an essential process for all companies in the financial sector seeking to fully leverage their data potential. MDM enables the centralization, organization, and management of critical data in a consistent and accurate manner. In a world where data has become a strategic asset, mastering MDM is crucial to ensuring the reliability of information and optimizing operations.

Why MDM is Crucial

MDM ensures that master data, such as information on customers, products, and suppliers, is accurate, consistent, and up-to-date. This reduces errors and improves overall data quality. By centralizing master data, MDM facilitates the integration of the bank’s systems and applications. This optimizes operational processes, reduces data duplication, and improves overall efficiency. Accurate and reliable data is essential for informed decision-making. MDM provides a single, consistent view of data, allowing decision-makers to quickly access relevant and high-quality information.

Benefits and Challenges of MDM

Banks implementing effective MDM benefit from numerous advantages. By eliminating redundancies and improving process efficiency, MDM reduces data management costs. Data errors are also minimized, reducing correction and reconciliation costs. MDM consolidates customer information, providing a complete and accurate view of each client. This enables personalized interactions and improves customer satisfaction and loyalty. Increasingly stringent data management regulations require sector companies to maintain accurate and traceable data. MDM helps ensure compliance by providing consistent and centralized management of master data.

However, implementing MDM presents challenges. Integrating diverse and often incompatible systems can be complex. The solution lies in using robust data integration tools and adopting open standards to facilitate interoperability. Ensuring data quality is a major challenge. It is essential to implement processes for cleaning, validating, and managing data quality to ensure accuracy and reliability. The success of MDM also depends on the involvement of all stakeholders. Raising awareness and training teams on the importance of MDM and involving them from the early stages of the project is crucial.

Conclusion

Master Data Management is a crucial pillar for any bank or financial institution seeking to optimize its data management and fully capitalize on it. By ensuring the reliability, consistency, and accessibility of master data, MDM contributes to operational efficiency, better decision-making, and an improved customer experience. In a world of constant technological evolution, the importance of MDM continues to grow, and companies that master this aspect are better positioned for success.

12Jul2024

 Service Offering: Correspondent Banking AML

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 Service Offering: Correspondent Banking AML

At DEVLHON Consulting, our specialized consultants work on AML (Anti-Money Laundering) projects in correspondent banking for international banking groups. We assist compliance teams in implementing quick and effective solutions using various processes and technologies.

 Your Challenges

Correspondent banking is a high-risk activity for money laundering, requiring strict regulatory oversight. Our services help integrate this oversight into transaction monitoring systems (TMS).

 Our Solutions

Complete CB AML Upgrade

Program framework, risk identification and prioritization, implementation, and process testing.

CB AML Tuning

Adjustment of risk scenarios, calibration according to local specifics, and adaptation of existing tools.

CB AML Auditability

Regulatory documentation, audit preparation, and reporting optimization.

 Are You Ready?

It is crucial for banks to have an active AML-CFT system. We offer to support you in upgrading and optimizing your compliance systems.

Our offer in detail :  AML Correspondent Banking

10Jul2024

Climate Risk Supervision: A Crucial Issue for the ACPR in 2023

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Climate Risk Supervision: A Crucial Issue for the ACPR in 2023

In 2023, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) continued to strengthen its initiatives in sustainable finance and Corporate Social Responsibility (CSR), with a particular focus on the supervision of climate risks. This approach is part of a broader context of heightened awareness of the impacts of climate change on the financial sector and the need to ensure the resilience of institutions in the face of these challenges.

 

Measures for Supervision and Assessment of Climate Risks

Climate Stress Tests

One of the major initiatives of the ACPR in 2023 was the launch of a dedicated climate stress test exercise for insurers. The goal of this exercise is to evaluate the potential impact of climate risks on insurers’ activities by considering various forward-looking and short-term scenarios. The results of these stress tests are crucial for understanding the vulnerabilities of insurers to climate risks and for guiding future supervisory actions.

Climate Transition Plans

The ACPR has also played an active role in European discussions on climate transition plans. In collaboration with European authorities, the ACPR has contributed to defining the content of these plans and developing an appropriate supervisory framework. The objective is to integrate these plans into prudential regulation and the supervision of banks and insurers, thereby ensuring proactive management of climate risks.

 

Transparency and ESG Reporting

Reports on ESG Criteria

The transparency of financial institutions regarding their consideration of Environmental, Social, and Governance (ESG) criteria is essential for sustainable finance. The ACPR has supervised insurers’ reports on the integration of ESG criteria, in accordance with Article 29 of the Energy-Climate Law of November 8, 2019. These reports must detail how insurers consider climate and environmental risks in their risk management.

Internal Awareness Initiatives

To promote a culture of climate and environmental risks, the ACPR has created an internal reflection group, the Collective Acting for the Planet (CAP). This working group aims to quickly and widely disseminate knowledge and best practices in climate risk management within the organization.

 

Challenges and Perspectives

Adaptation of Risk Management Models

The supervision of climate risks and the promotion of sustainable finance pose several challenges. Financial institutions must adapt their risk management models to integrate climate risks, which may require significant investments in resources and skills. This includes sophisticated climate modeling tools and robust data management systems, as well as specific expertise in climatology and green finance.

Quality and Consistency of ESG Reports

Improving the quality and consistency of ESG reports is also essential to ensure effective and useful transparency. Better climate risk management and increased transparency will help better protect investors and the public while supporting sustainability goals.

 

Conclusion

The year 2023 marked an important milestone for sustainable finance and CSR under the supervision of the ACPR. Initiatives aimed at integrating climate risks into supervision and improving ESG transparency demonstrate a strong commitment to more sustainable finance. The continued efforts of the ACPR and various banking and financial actors will help strengthen the financial sector, making it more resilient and responsible in the face of future climate challenges. These developments are detailed in the ACPR’s 2023 annual report, which highlights efforts to promote sustainable finance and integrate climate risks into financial supervision.

5Jul2024

(Français) Présentation de l’offre Excellence Réglementaire de DEVLHON Consulting

Posted By: DEVLHON Consulting

Sorry, this entry is only available in Français.

4Jul2024

Supervision of Crypto-Assets – ACPR 2023 Annual Report

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DEVLHON Consulting Deciphers the ACPR 2023 Annual Report: Supervision of Crypto-Assets

The year 2023 marked a significant advancement in the supervision of crypto-assets, a rapidly growing sector that also carries numerous risks. The 2023 annual report of the Autorité de Contrôle Prudentiel et de Résolution (ACPR) highlights the efforts made to regulate this field, complementing the general framework for combating money laundering and terrorist financing (AML-CFT). DEVLHON Consulting analyzes the key initiatives and measures taken by the ACPR to ensure effective supervision of crypto-assets.

 Regulatory Context in 2023

In 2023, the regulatory framework for crypto-assets was significantly overhauled with the introduction of the Markets in Crypto-Assets (MiCA) regulation. This regulation aims to harmonize the rules applicable to crypto-assets across the European Union, encompassing issuers, service providers, and investors. MiCA imposes strict requirements regarding transparency, consumer protection, and the fight against illicit activities.

Simultaneously, the Transfer of Funds Regulation (TFR) was updated to include specific provisions for crypto-asset transactions. This regulation ensures the traceability of electronic fund transfers, including crypto-assets, to prevent money laundering and terrorist financing.

 ACPR Initiatives for Crypto-Asset Supervision

The ACPR implemented several key measures to strengthen the supervision of crypto-assets in 2023:

Registration and Monitoring of Digital Asset Service Providers (DASPs):

Since 2020, the ACPR has supervised DASPs to ensure their compliance with AML-CFT requirements. In 2023, the ACPR intensified its inspections, examining 14 DASPs to verify their adherence to current regulations.

European Collaboration and Coordination:

The ACPR actively participates in preparatory work for the creation of the European Anti-Money Laundering Authority (AMLA). This new authority will directly supervise the most high-risk financial institutions, including those involved in crypto-assets.

Preparation for MiCA Regulation Implementation:

In anticipation of the MiCA regulation’s application in 2024, the ACPR has started preparing for a smooth transition. This includes consultations with market participants to ensure proper understanding and application of the new rules.

Risk Analysis and Management:

The ACPR updated its sectoral risk analysis for AML-CFT to include market practice developments and new actors in the crypto-asset field. This analysis helps identify the most vulnerable sectors and target inspections effectively.

 Challenges and Outlook

Supervising crypto-assets presents several challenges. The decentralized and pseudonymous nature of transactions complicates traceability and the detection of illicit activities. Additionally, the rapid innovation in this sector requires continuous adaptation of regulations and supervisory approaches.

Despite these challenges, the efforts of the ACPR and European regulators aim to create a safe and transparent environment for crypto-asset transactions. In the long term, these measures should help reduce associated risks and strengthen confidence in this emerging sector.

 Conclusion

The year 2023 was crucial for the supervision of crypto-assets, with major advancements in the regulatory framework and the ACPR’s supervisory initiatives. By enhancing transparency requirements and intensifying inspections, the ACPR strives to prevent abuses and ensure the security and stability of the financial system in the face of the rise of crypto-assets. These efforts, detailed in the ACPR’s 2023 annual report, are essential for integrating crypto-assets into a robust and reliable financial framework.

3Jul2024

DEVLHON Consulting Deciphers: Preparing for the Entry into Force of AMLA

Posted By: DEVLHON Consulting

DEVLHON Consulting Deciphers: Preparing for the Entry into Force of AMLA

Context and Objectives of AMLA

The fight against money laundering and terrorist financing (AML/CFT) is a priority for financial authorities worldwide. In Europe, this fight is taking a crucial step forward with the entry into force of the European Anti-Money Laundering Authority (AMLA). This new entity aims to harmonize and strengthen AML/CFT measures at the European level, ensuring more coherent and centralized supervision. AMLA was created as part of the anti-money laundering legislative and regulatory package adopted in 2023. Its primary objective is to directly supervise the highest-risk financial institutions at the European level, to improve the consistency and effectiveness of AML/CFT measures.

Preparations of Financial Institutions

Financial institutions must actively prepare for the entry into force of AMLA. They are enhancing their internal compliance systems to ensure they meet the new European standards. This includes improving processes for detecting and reporting suspicious activities, as well as implementing enhanced training for staff. Internal policies and procedures are being reviewed to ensure they align with AMLA requirements, with the implementation of more stringent controls and the documentation of compliance processes. Additionally, advanced technologies, such as artificial intelligence and machine learning, are increasingly being used to detect suspicious activities and improve the efficiency of surveillance systems.

Role of the ACPR in the Transition

The Autorité de Contrôle Prudentiel et de Résolution (ACPR) plays a crucial role in preparing for the entry into force of AMLA. The ACPR is actively involved in preparatory work to ensure a smooth transition to the new supervisory framework. This includes collaborating with other European regulators to harmonize supervision requirements and practices. In 2023, the ACPR intensified its efforts to oversee crypto-asset service providers. The Transfer of Funds Regulation (TFR) imposes new requirements to ensure that crypto-asset transactions are transparent and traceable, thus reducing money laundering risks. The ACPR has updated its sectoral risk analysis to incorporate market practice developments and new players, particularly in sensitive sectors like fund transfers and crypto-assets.

Challenges and Perspectives

The implementation of AMLA and the associated new regulations represents a considerable challenge for financial institutions. They must comply with stricter requirements, which may necessitate significant investments in human and technological resources. Compliance costs can be high, especially for smaller financial institutions. However, these costs are essential to ensure the stability and security of the financial sector. Integrating advanced technologies into compliance systems can be complex and requires adequate staff training.

Conclusion

The entry into force of AMLA marks a crucial step in the fight against money laundering and terrorist financing in Europe. Ongoing preparations, both at the level of financial institutions and regulators like the ACPR, are essential to ensure a smooth and effective transition to this new supervisory framework. In the long term, these efforts will help strengthen the resilience and transparency of the European financial sector, thereby ensuring better protection against financial and criminal risks.

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