IEA warns Europe of gas crisis next winter

Europe has secured gas supplies for this winter but must take urgent action to avoid shortages next year in the absence of supplies from Russia, the European Commission and the International Energy Agency (IEA) have warned.

Both called for demand to be reduced by improvements to energy efficiency and the installation of more renewable power generation and electric heat pumps, while also bolstering gas supplies by jointly procuring more gas from alternative suppliers.

Ursula von der Leyen, the EC president, said that European energy supplies were “safe for this winter” and that “Russia’s blackmail has failed.” However, “preparing for winter 2023-24 starts now”, she added, citing IEA analysis that next winter would be “even more challenging” than the current one, with a potential shortfall of up to 27 billion cubic metres of gas, or almost 8% of potential demand.

Europe sourced more than a third of its gas supplies from Russia before the invasion of Ukraine last February. President Putin has curtailed supplies in retaliation for western sanctions: Russian exports to Europe fell from 140 billion cubic metres in 2021 to 60 billion cubic metres this year, according to IEA data.

Europe secured sufficient gas for this winter by buying up cargoes of liquefied natural gas (LNG) at high prices from elsewhere in the world and was further helped as this winter began with mild weather that limited demand. However, next year could be more difficult because “it is very likely that next year we may not have any Russian gas in our system”, said Fatih Birol, the energy agency’s executive director.

New supplies of LNG coming onstream globally next year are at a record low and China, the top consumer of the fuel, is likely to increase demand and reduce much of the new capacity, while next winter could also see colder temperatures in the early months.

The IEA said that without further action, Europe “faces a serious supply-demand gap opening up in 2023” and estimates demand at about 352 billion cubic metres but supply of only about 325 billion cubic metres. Any shortfall that would have to be balanced through higher prices, lower demand due to industry being unable to operate and reversing the phase-out of coal.

The agency is urging European Union members to act to “close this gap” by reducing demand to 330 billion cubic metres, representing a 16% reduction from the five-year average of 393 billion cubic metres and 8% less than the 360 billion cubic metres estimated for this year.

The IEA also proposed a €100 billion (US$105 billion) programme of measures including: an energy efficiency drive to renovate buildings and switch to LED street lighting; faster deployment of renewables; encouraging the switch to electric heat pumps; and encouraging behavioural change from consumers.

Australian government moves nearer mandatory climate disclosures

Australia’s government has launched a consultation on mandatory climate-related financial disclosures for large listed companies and financial institutions, ahead of a wider sustainable finance strategy in early 2023.

The strategy was outlined at an event hosted by the Australian Sustainable Finance Institute (ASFI) attended by the government’s Treasurer, Jim Chalmers. It will seek industry input on how the proposed disclosures should be designed and does not contain any detailed proposals, although reports suggest that Chalmers is considering introducing green or sustainable bonds.

The consultation says that the government is committed to requiring disclosures on climate governance, strategy, risk management, targets and metrics. It adds that there “is scope to deliver a reporting requirement that is initially Task Force on Climate-related Financial Disclosures (TCFD)-aligned and able to reflect International Sustainability Standards Board (ISSB) standards when they become available for jurisdictional adoption.”

Treasury is asking for public submissions by 17 February.

In his speech delivered at the ASFI event in Sydney, Chalmers said that Australian firms “need to make credible disclosures to remain competitive in global capital markets.

“There’s now broad acceptance that proper disclosure of these financial risks and impacts isn’t a nice-to-have extra. This information is need-to-know – essential to mobilising the weight of our financial system behind the net zero transition.”

Under prime minister Anthony Albanese, the Australian government is aiming for business and investors to gain greater clarity and certainty to manage climate risks and invest in new opportunities. It wants large business and financial institutions to provide “more information and greater transparency on how they are responding to climate change and supporting the transition to net zero”.

The government says the reporting requirements are expected to be mandatory for large entities and phased in over time. It also plans to apply “appropriately tailored requirements to comparable commonwealth public sector corporate entities and investment funds”.

ESMA proposals pose challenge for fund managers

Plans by financial markets regulator the European Securities and Markets Authority (ESMA) to set quantifiable environmental, social and governance (ESG) and sustainable investing standards is reportedly forcing portfolio managers to rethink how they design and market an ESG fund class known as Article 8.

Asset managers believe the new regulatory proposals have the potential to upend Europe’s biggest ESG fund category. US financial services company Morningstar estimates that only 18% of Article 8 funds, which hold about US$4 trillion of assets, currently meet the watchdog’s proposed threshold for sustainable investments.

ESMA’s proposals aim to prevent the practice dubbed “greenwashing” – where a company’s claims for its environmentally-friendly credentials are not matched by reality – but critics believe they risk confusing investors holding Article 8 funds under the Sustainable Finance Disclosure Regulation (SFDR).

In its draft guidance, which is open to feedback until 20 February, the regulator proposes that any European Union-domiciled fund with an ESG-related or impact-related label must meet an 80% sustainable investment threshold. Any funds labelled as ‘sustainable’, or any other term derived from “sustainable”, are additionally expected to ensure that 50% of that 80% threshold qualify as sustainable investments under SFDR.

Minimum safeguards will also apply to funds using exclusion criteria. ESMA will undertake additional considerations for index and impact funds.

ESMA wants to impose similar thresholds on Article 8 funds, which are defined as having sustainable characteristics under SFDR. A threshold of at least 50% sustainable investments for Article 8 funds that meet the initial minimum proportion of 80% is “an appropriate proxy”, said ESMA, noting this “is high enough to justify the use of the term sustainable or any other sustainability-related terms in their name”. However, it would create different requirements for Article 8 funds, depending on their names or labels.

“Despite the fact that ESMA states that these guidelines should not interfere with SFDR, it does so by adding an important minimum threshold for Article 8 funds using any ESG-related terms in their name,” commented Julia Vergauwen, Managing Associate of the Investment Funds Practice at law firm Linklaters. She added that the proposals risk creating two types of Article 8 products; “those with ESG terms in their name which will be subject to minimum thresholds and those without ESG terms in their names without minimum thresholds”.

ESMA’s proposal for EU fund-labelling guidelines follows parallel developments in the US and UK. The regulator will be publishing the final version of the guidelines by mid-2023.

Deutsche Bank applies to re-join key gold trading club

Deutsche Bank has applied to re-join the London Bullion Market Association — the world’s foremost standard setter for gold trading — as it seeks to expand its trading unit.

The LBMA application “brings us into line with other banks that offer precious metal services,” Deutsche Bank said in a statement last week. “It reflects the careful growth of our precious metals business in recent years, and growing client demand for our services.”

According to a Bloomberg report the move, which potentially cements the bank's status in precious metals, is part of trading head Ram Nayak's effort to maintain momentum at Deutsche Bank's fixed-income business. Nayak's unit has been the lender’s biggest growth driver over the past three years and key to Chief Executive Officer Christian Sewing’s turnaround strategy.

Deutsche Bank was a founding member of the London Precious Metals Clearing (LPMCL) in 2001, set up to develop an electronic matching system to replace trading by phone or fax. But following an exit from much of its physical commodities business in 2013, it withdrew from gold and silver benchmark price setting in January 2014 and closed its physical precious metals trading arm in November that year. In August 2015 it announced that it would sever its last link with commodities trading by resigning as a shareholding member of the LPMCL.

The application to re-join follows a recent comment by Bank for International Settlements’ (BIS) head of banking department Peter Zoellner in a public panel discussion, who said: “Here in late 2022, and with gold prices matching last year's record-high of US$1800 per ounce, it would be good if more banks were to re-enter the market.”

More fines imposed on FTSE 100-listed firms

The value of fines against major companies listed in the UK’s FTSE 100 index in the year to June 2022 has quadrupled since the previous year, Thomson Reuters Regulatory Intelligence research shows.

Companies on the FTSE 100 index received £1.6 billion (US$1.97 billion} in fines in the 12 months ended 30 June, compared to fines totalling £354 million in the previous year. The £1.6 billion figure also marks an eight-fold increase on the £192m fines handed out to the 100 biggest UK listed companies in 2019-20.

The uptick comes as UK watchdogs have taken advantage of new powers – including the ability to hand out turnover-linked penalties – to impose increasingly large fines on the country’s top firms.

Thomson Reuters regulatory expert Michael Cowan said: “In recent years regulators have been given more powers to fine corporates as a percentage of their turnover – for example for breaches of General Data Protection Regulation (GDPR) or of competition law.

“Regulators are clearly willing to impose very large fines as they clamp down on corporates suspected of breaching regulations.”

“The aim of regulators has been to get fines up to the level where they are a real deterrent,” Cowan said. “Regulators like the Financial Conduct Authority (FCA) or the Securities and Exchange Commission (SEC) do not want fines to be seen as an acceptable cost of doing business.”

The Thomson Reuters research also suggests that the increase in fines comes as governments across the world have taken an increasingly interventionist stance towards regulating the private sector in the wake of the 2008 financial crash. The group reports that the more stringent approach – particularly towards the global financial sector – saw 64,152 significant regulatory changes across 190 jurisdictions in 2021, compared to averages of just 33,954 per annum in the decade from 2009-2019,

Firms working in the natural resources and energy industries accounted for 69% of all UK fines last year, in racking up penalties worth £1.1 billion in 2021-22. The UK’s financial sector was fined a total of £354 million over the same period.

“The increasingly international nature of FTSE100 companies means that they are having to deal with a patchwork of different regulators across their business,” Cowan said.  

“That not only increases the risk that they will fall foul of regulatory or statutory rules but it also increases the risk that they can be fined by multiple regulators in different jurisdictions for the same mistake.”

Bank of England invites applications for “proof of concept” CBDC wallet

The Bank of England (BOE) is seeking a “proof of concept” for a wallet that will be able to hold a central bank digital currency (CBDC). The BoE has posted a request for applications on the UK government’s Digital Marketplace, a service where government organisations can solicit work for digital projects.

Guidelines for what the PoC wallet would have to achieve were outlined, with the wallet seemingly only needing to offer basic functionality such as a signup process, a way to update details, and to display balances, transactions and notifications.

The wallet also needs to demonstrate that it can be loaded and unloaded with a CBDC, along with being able to request peer-to-peer (P2P) payments through an account ID or QR code. It also must be able to be used to pay businesses online.

Key deliverables for the project are creating a mobile app for iOS and Android, a website for the wallet, an example merchant website and the back-end infrastructure to serve the wallet website and apps while also storing user data and transaction history.

The BoE confirmed that no work has yet been done on a CBDC sample wallet, and it has no plans to develop a user wallet itself.

The stated aims of the project are to “explore the end-to-end user journey” as the BoE seeks to “sharpen functional requirements for both the Bank and private sector” along with making the CBDC product “more tangible for internal and external stakeholders.”

A budget of £200,000 (US$246,000) for an expected five-month project was set for the PoC, with the BOE likely to evaluate five suppliers.

Trade compliance firm TradeSun acquires Coriolis

TradeSun, the trade finance compliance and automation tools provider said that it has acquired Coriolis Technologies, the Belfast, Northern Ireland-based environmental, social and governance (ESG) scoring platform.

It said that with the addition of Coriolis's reporting tools its aims to expand its ESG compliance services across its affiliated regional and global banks, who use its "one-stop" artificial intelligence (AI) platform to stop financial crime as well as digitising trade documentation. TradeSun also plans to pursue further growth focused on enabling digitised and sustainable cross-border trading.

Coriolis's ESG product offering was developed in partnership with more than 50 financial institutions. It uses the UN Sustainable Development Goals (SDGs) as well as the European Union’s sustainability taxonomy to score, monitor and verify trading supply chains, and also includes “multilateral” trade data to uncover cross-border risks, such as geopolitical or economic turmoil.

The acquisition extends a partnership deal agreed by the two companies in August. Coriolis founder Dr. Rebecca Harding will now serve TradeSun as a strategic adviser.

Nigel Hook, founder and CEO of TradeSun, said that the financial trade ecosystem was bound to seek better ESG scores in an effort to maintain market share as banks introduce sustainable financing products. He added: “With regulations evolving fast to mandate sustainable commerce, banks will increasingly play a more central role in facilitating and guiding the trade ecosystem to adopt more sustainable practices.

“The acquisition will support both financial institutions as well as supply chain players to assess and modify their businesses to meet industry and sovereign ESG goals.”

Canada’s EQ Bank launches digital banking platform in Quebec

EQ Bank, powered by Canadian challenger bank Equitable, said that it has launched its digital banking platform into the Quebec market, making it available coast-to-coast to all Canadians.

“We’re thrilled for EQ Bank to be part of Quebec’s financial landscape,” said Mahima Poddar, Group Head of Personal Banking. “Canadian society deserves access to the best banking experience, one that works best for them.

We’ve always challenged the status quo to drive better options in banking – from having one account that combines high interest with everyday chequing features, to never charging fees on everyday transactions, to buying attractive rate Guaranteed Investment Certificates (GICs) with the press of a button. We are so excited to be helping Quebecers make more with their money.”

EQ Bank launched in 2016 and now has over C$7 billion in deposits and more than 290,000 customers.

Latest Mastercard-Paysend payments partnership launched in Ukraine

Mastercard and fintech Paysend, which have previously launched several joint initiatives, announced a new partnership to “improve the cross-border payments experience for dozens of markets globally,” with Ukraine the first country already benefiting from new near real-time payment options.

Both companies will take advantage of each other’s respective networks and capabilities to enable more people around the world to send and receive payments in near real-time, directly to bank accounts and to the vast majority of cards across multiple networks.

Mark Barnett, President of Europe, Mastercard, said: “The cross-border payments network is key to supporting a well-functioning global economy and our partnership with Paysend will ensure that together we meet the needs of consumers and businesses. Importantly, by starting this collaboration in Ukraine we can help those impacted by the war to have greater certainty, speed and choice over how they receive money at this very difficult time.”

The companies added that the ”innovative payment technology” will be available in several countries around the globe by the end of this year.