In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 9 Mar 2018
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China’s two sessions kick off

The annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference, also known as China’s two sessions, opened in Beijing on March 3. The country’s Parliament widely expects to make global headlines as it looks to implement drastic constitutional changes to maintain the power of President Xi Jin Ping by dropping China’s two-term presidential limit.

Also in the spotlight is the expected appointment of the new People’s Bank of China governor after the man currently in the role, Zhou Xiaochuan steps down. He was not re-included as a member of the Chinese People’s Political Consultative Conference, the strongest sign yet he is set to retire. 

In his speech, Li said that China will continue to open up its banking sector to the world by removing foreign ownership caps on banks, brokerage houses and fund management firms. In February, the China Banking Regulatory Commission announced initial amended rules for foreign banks, which will only need to notify authorities they are carrying out their activities in the PRC, not seek approval anymore.

In Hong Kong, the Securities and Futures Commission has launched a  consultation on proposed amendments to the Codes on Takeovers and Mergers and Share Buybacks to boost investor protection. It's an important change for a jurisdiction that has so far had only a minimal level of  shareholder protection, especially for independent and retail shareholders.

US rollback gathers steam

They say the news writes itself, and for US financial and legal journalists, this could not be more true this week.

White House chief economic advisor and Wall Street exponent Gary Cohn resigned from his post on Tuesday, leaving a nervous atmosphere in the annals of DC and the capital markets. Cohn stepped down amid fierce opposition to President Trump’s new aggressive stance on global trade tariffs.

Just days before, freshly minted Federal Reserve Chairman Jerome Powell made his inaugural testimony to Congress, outlining his positive outlook for the US economy and his intention to raise interest rates at least four times this year. The markets responded well to his speech.

Powell also suggested that the Fed supports the banking bill proposed by senator Mike Crapo which proposes raising the limit of designating for systemically important financial institutions from $50 to $250 billion. The bill advanced through the Senate on Tuesday, with many Democrats supporting its proposed amendments to the Dodd-Frank Act.

Vice chair for supervision Randal Quarles spoke to the Institute of International Bankers Annual Washington Conference on Monday, confirming the Treasury is in the process of developing substantial proposals to roll back the Volcker rule, largely by reducing its burden with legislative clarity.

It was revealed this week that Cfius intervened in the potential acquisition of semiconductor company Qualcomm by Singapore-based rival Broadcom. The agency suggested  in a letter that the proposed hostile takeover bid could pose a national security threat to the US, and ordered the target company to postpone its annual shareholder meeting.

Finally, Spotify confirmed that it will begin trading on the NYSE under the ticker name SPOT last Wednesday. As expected the music streaming service intends to pursue a direct listing, an untested approach for an initial public offering of this size.

Solutions to long-standing EU problems

IFLR this week reported on the EU’s non-performing loan problem and found that the ninth International Financial Reporting Standard (IFRS 9) could help significantly. Andrew Orr, Deloitte financial advisory partner, said the new accounting standard could encourage banks to sell parts of their underperforming loan portfolios because this will result in faster recognition of losses and could reduce high valuations. 

Slow progress is being made and it is believed a completed banking union and private equity involvement is needed. This is sure to be an issue that will continue to rumble on.

France’s AMF has regulated cryptocurrency derivatives meaning that platforms will be forced to comply with the new Markets in Financial Instruments Directive (Mifid II) and European Market Infrastructure Regulation (Emir). With European regulators becoming increasingly vocal about crypto regulation this could be a model that Europe uses if it is successful. IFLR will report on the latest developments in the coming weeks.

In the Netherlands, finance minister Wopke Hoekstra announced that the government would seek to regulate cryptocurrencies to clamp down on their improper use.

Mifid II could potentially cause confusion amongst private equity firms after Brexit. When the UK becomes a third country, investment advisors will need a Mifid passport to deal in the EU, but according to John Young, financial regulation counsel at Ropes & Gray, it is unclear which private equity firms would require a Mifid II passport.

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