Capital Markets
Developing primary and secondary markets, asset classes and instruments
Capital markets transfer financial risks, capital and liquidity between issuers of securities, or assets and similar instruments, and investors – the market participants. Brexit, digitisation, supervision, global risks, revenue churn and cost pressure – changes in the capital markets business are manifold for banks and financial services players, and will change the market structure over the next decade.
"Our mission is to build trust within markets, between issuers, investors, sellside banks and further intermediaries as well as market infrastructures. Jointly with and for our clients, we develop and optimise primary and secondary markets solutions, processes and products. Thus, our team implements necessary change and ensures viable business models for our clients as well as funding opportunities to the real economy."
Our Capital Market practice at a glance
Our Services
Business Model
Recent economic and political developments, especially regarding new competitors, client demands and changing regulatory expectations, are putting capital market participants’ margins under severe pressure. This pressure is forcing firms to review their strategies and related business models in the light of new developments such as the following:
- With the current uncertainty regarding Brexit, EU capital market participants are facing additional challenges and external dependencies when trying to define their business strategy for the coming years. Examples include the development of EU27 liquidity pools post-Brexit, the decision on and enforcement of the European Commission’s Capital Markets Union (CMU) measures, and the differing regulatory expectations from the Federal Reserve, the Prudential Regulation Authority/Financial Conduct Authority (PRA/FCA) and the European Central Bank (ECB) regarding global financial institutions’ bookkeeping models.
- Digitising and tokenising financial and real assets will change middle- and back-office processes and allow firms to redesign their client outreach, communication and risk management processes.
- Additional revenue streams may be derived from market developments around green finance and sustainability, while funding can be optimised via structured finance and securitisation programmes.
"In this challenging environment, firms are striving to adapt by searching for sustainable business models, optimising their operating models and identifying alternative investments in search of greater returns."
We can support you in these challenging times with services such as identifying how these new trends can be used to help your firm develop a sustainable business model, providing technical advice regarding legal requirements and supervisory expectations, and providing insights on how to optimise processes and controls regarding the topics above. We also advise on and support new product approvals/processes – from granular to holistic level – in all iterations up to providing holistic target operating model development and implementation, enterprise design and advice for chief information officers (CIOs). Further specific services include implementing digital products and supporting tokenisation, initial coin offering (ICO) or security token offering (STO) setups.
We can offer you an experienced, scalable team of Senior Managers and staff, with extensive industry, product, process and regulatory know-how. On the international level, we work together with our network to support our clients in staff planning and secondments.
Sustainability – the view from a Brexit bank perspective
Comparative Analysis of BaFin, ECB, TCFD and PRA Expectations.
Capital Markets Regulation and Compliance
Over and above the existing economic and political developments, capital market participants often face challenges when striving to comply with the numerous new legal and regulatory requirements. These often require parallel design and implementation projects to meet tight deadlines, and are dependent on input from business units and support functions across the organisation.
Our Capital Markets specialists here at PwC can help you assess, prepare for, and execute such transition projects. We will work with you across the entire lifecycle of the transition, including programme mobilisation and governance, impact assessment and transition planning, contract management and remediation, client and customer outreach and communication, changes to systems and processes, changes to risk and valuation models, and managing related tax and accounting implications.
"We have extensive experience regarding regulatory requirements, having worked on regulatory remediation programmes addressing findings from on-site inspections and insights into the ECB’s supervisory approach and structure."
Please don’t hesitate to contact our experts if you are seeking technical advice regarding legal requirements, supervisory expectations, and insights on optimising processes and controls for topics such as:
- Reference Rate Reform (IBOR)
A tremendous shift across financial markets is taking place with the replacement of the London interbank offered rate (LIBOR). Currently the benchmark for over $350 trillion in financial contracts worldwide, the impact of the transition from LIBOR will be far-reaching for financial services firms, businesses and customers alike. - European Market Infrastructure Regulation (EMIR)
New rules aiming at creating a level playing field for all central counterparties (CCPs) operating in the Single Market, regardless of where they are based, are leading to more stringent requirements for systemically important CCPs, including the availability or type of collateral held in a CCP, segregation requirements and liquidity arrangements. - Central Securities Depository Regulation (CSD-R)
All banks and investment firms performing internalised settlements fall under the scope of the new CSSF circular 19/709 on quarterly internalised settlement reporting requirements. All banks and investment firms settling instructions on European CSD's need to adhere to the Settlement Discipline under CSD-R latest in February 2021 (endorsement of European Commission pending). The settlement discipline regime (SDR) will force cash penalties on participants when a transaction is not settled on ISD (Trade Day +2) and securities mandatory bought in via a buy-in agent if the instruction has not been settled after an extension period (liquid securities ISD + 4 days). We can support you in assessing the impact of the CSD-R, identifying potential gaps and remediating gaps identified, in order to ensure timely implementation of (automated) reporting and SDR requirements. - Securities Financing Transaction Regulation (SFTR)
Under the SFTR, all market participants will be required to report the details of their security financing transactions (SFTs) to trade repositories. This reporting is intended to be consistent with EMIR, while catering for the specifics of the SFT market. Given the challenging implementation timeline, firms need to urgently identify necessary actions to comply with the new reporting requirements. - Market Conformity
German Minimum Requirements for Risk Management (Mindestanforderungen an das Risikomanagement, or MaRisk) require firms to establish suitable procedures, escalation processes and tools for verifying market conformity of transactions. - Recovery & Resolution Planning
Stability and trust are integral parts of local, regional and global financial systems. However, in today's increasingly interconnected world, failing financial institutions can threaten the stability of capital markets. Costly public interventions during the 2008 financial crisis highlighted the need to set out clear requirements regarding financial institutions’ recovery and resolution plans. Our team has extensive experience in helping clients define project scope and structure, providing support in drafting a recovery plan and providing technical input regarding regulatory requirements and supervisory expectations.
Our experts have extensive knowledge and can support you with any questions relating to the ECB’s supervisory approach, including the comprehensive assessment (ie, including asset quality review and European Banking Authority (EBA)/ECB stress tests); and the supervisory review and evaluation process (SREP), featuring supervisory expectations for business model assessment, assessment of governance and risk management processes, and internal capital/liquidity adequacy assessment processes (ICAAP/ILAAP).
Treasury & Liquidity (Risk) Management
An environment of low interest rates, Brexit, cost pressure, regulatory scrutiny and outdated IT infrastructure presents key challenges for the heart of every bank: the treasury. Treasury challenges can be clustered into five main areas:
- Economic balance sheet, interest rate risk and liquidity management
- Funds transfer pricing (FTP)
- Regulatory compliance
- Competition and cost
- Transformation and digitalisation
We know how to set up and define balance sheet management, interest rate risk, liquidity management and liquidity risk management while integrating these into a well-functioning funds transfer pricing structure. All of this enables capital market players to incentivise trading units and other functions in a way that supports and grows the business.
Regulatory compliance is important due to regulatory activity in the past and is still a high priority for regulators, in particular regarding treasury and liquidity (risk) management. Past regulatory activity has revealed new areas of technical and economic scrutiny, especially for sell-side banks operating globally and players active in the high-frequency trading business on their own account, as well as in prime brokerage. Liquidity coverage ratio (LCR) and balance sheet window dressing, net stable funding ratio (NSFR), FTP, stress testing, intraday liquidity, interest rate in the banking book (IRRBB) and structural foreign exchange (FX) positions, among others, are constantly monitored on a standalone basis for each legal entity, which is a game changer. Reporting also requires data of sufficient quality. Ask us how you can ensure regulatory compliance and proper reporting, while keeping operative and portfolio synergies intact to support global models and protect liquidity.
With profitability concerns across the banking industry, treasurers need to focus on their own cost base; but of even greater and increasing importance is the profitability of the bank as a whole. With the treasury being closely connected to a bank’s balance sheet, efficient use of a bank’s resources needs to be ensured to foster better overall business decisions – with the treasury being a strategic partner.
Last but not least, digital transformation and digitalisation are key trends in the industry. Most treasuries are currently working with outdated IT infrastructure and poor-quality data, hampering the decision-making process. The use of new technology is crucial to make the decision-making process more efficient – but also in the drive for better and more sustainable strategic decisions.
"There is uncertainty across the industry on how to act in the current environment and how to align spending across all dimensions. Our treasury experts can help you to navigate this uncertainty, providing guidance on industry trends, technological solutions and regulatory expectations."
Business Readiness Maturity Assessment
The current climate of Brexit, digital disruption and changing regulations demands multi-layered change in businesses. To help you adapt to these new conditions, our Capital Markets team can evaluate the strategic, regulatory and operational readiness of your business with our proprietary Brexit Readiness Maturity Assessment (BreMATM) tool and methodology.
To quickly and efficiently identify gaps in your preparation, we have developed an online self-assessment questionnaire to determine the maturity status of your business activities. The BreMATM tool comes tailored to your organisational setting, and you will be guided on its use by our experts throughout the process.
Should you be interested in using the BREMA tool or methodology, please contact our expert.
The key success factors of our assessment tool are:
- Structured assessment topics in alignment with organisational structure
- Flexibility to be used for a wide variety of topics; the tool can be extended to your needs at short notice and has virtually unlimited technical capacity in terms of areas of assessment, organisational units involved and flexibility to include your own questions if required
- Holistic approach which covers all aspects of the business value chain in strategic, regulatory and operational areas
- Online accessibility via the PwC domain, compliant with global data protection standards
- Intuitive analysis of existing gaps and focus areas enabled by heat-maps and matrices
- Prioritisation of necessary actions and mitigation measures based on the corresponding outcomes
Responsibilities are categorised upfront, which enables you to focus your analysis and address key stakeholders within your organisation one by one. Take matters into your own hands and use our assessment tool to gain key insights into your business’ readiness.
Executive Services
Understanding supervisory agendas, regulatory initiatives and keeping up to date with local requirements while also making sure that global business imperatives are considered is becoming increasingly difficult, especially for banks operating globally with their headquarters outside the EU27 or Eurozone. We provide boardroom training and one-on-one coaching on matters such as regulatory initiatives, structural reforms, the EU27, the Eurozone and local national requirements on all aspects of your business.
Additionally, we can offer your board members insights on industry developments, as well as comparisons between the most important regulatory and supervisory regimes – particularly the EU27/Eurozone, the UK and the US.
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Partner, PricewaterhouseCoopers Legal AG Rechtsanwaltsgesellschaft, Germany
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