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Investors intensify switch from equities to fixed income - Industry roundup: 5 July

NatWest calls for step change in approach to open banking 

In a report published on ‘The (Unmet) Potential of Open Banking’ commissioned by NatWest Group, Oxera identifies the critical economic obstacles holding back the broader adoption of open banking and the development of new innovative use cases beyond the regulatory mandate.

The report identifies the economic challenges preventing open banking from reaching its full potential. These include a lack of commercial incentives to develop or enhance APIs and a lack of alignment between ASPSPs (Account Servicing Payment Service Providers – i.e. banks) on the benefits of open banking.  There are also significant challenges around managing trade-offs, such as security and convenience, within the open banking ecosystem.

The report offers three possible routes forward to address these challenges, two that are already under discussion and an additional third option from Oxera:

  1. Mandate banks to offer a broader range of use cases: Expand the scope of open banking and require banks to provide the necessary data via APIs for free.
  2. Commercialised APIs: Encourage banks to expand open banking use cases through premium APIs.
  3. A multi-party system: Enable multi-party systems to emerge that have a commercial incentive to grow the open banking ecosystem by designing new, flexible frameworks for industry collaboration.

The report notes that different routes may be optimal for open banking use cases. Some use cases may benefit from hybrid approaches: for example, mandating the development of an API but leaving its commercialisation to the banks themselves or a multi-party system.


Investors intensify switch from equities to fixed income

Investors accelerated their flight from equity funds into fixed income and money markets in June, according to the latest Fund Flow Index from Calastone. They withdrew £662m from equity funds during the month, the largest outflow since the market convulsions of September 2022. June was one of the top ten worst months for equity fund outflows on Calastone’s record.

Investors were also net sellers of mixed asset funds and property at the fastest rate since the autumn of last year, withdrawing a net £384m and £79m in June, respectively. The cash raised found its way straight into fixed income funds, which saw net inflows of £880m and money markets, which enjoyed net inflows of £503m, their second-best month on record after March 2020 when markets seized at the onset of Covid-19. 

Calastone’s FFI: Money Markets, which compares net flows to total turnover, reached a record reading of 69.9 in June, as buying activity outweighed selling by 2.3:1, indicating a very high level of conviction by investors. June’s figures are part of a pattern that has extended since central banks started raising interest rates. Over the last twelve months, occasional flurries of optimism notwithstanding, investors have pulled £3.65bn from equity funds and pumped £7.29bn into fixed income. They have added another £2.44bn to money market funds.

“Fixed income funds and their money market cousins have not looked so attractive since before the global financial crisis,” commented Edward Glyn, head of global markets at Calastone. “At the same time, recession fears are stalking equity and property markets – investors are nervous. The result is a flight to safety. Money markets currently enable investors to earn an income of 5% or more at very low risk, while fixed income funds, which invest in longer-dated bonds than money market ones, offer the chance to lock into the highest yields in years. They now offer both income today and the prospect of capital gains when the credit cycle turns and market interest rates fall back.”


Argentina turns to Chinese yuan as dollars dry up

The Central Bank of Argentina has incorporated the Chinese yuan (CNY) as an accepted currency for deposit-taking in savings banks and checking accounts. Financial entities will now be able to open bank accounts denominated in CNY.

The move comes as the Argentine peso has dropped almost 80% against the US dollar in the past three and half years.

The central bank states that the measure is complementary to a decision by the National Securities Commission that enabled the negotiable securities in CNY.


CaixaBank launches wallets service for international payments

CaixaBank has launched FXWallets, which lets customers open virtual accounts to send and receive international payments in over 50 currency pairs.

With this step, CaixaBank says it is the first bank in Spain to offer a virtual account service for currencies to all types of companies. The service became available in June in pilot mode for a select group of companies, and starting in September, it will be available to all interested customers. The service is accessed via CaixaBank's website and app, which will feature the FXNow currency market platform.

The bank says the service is bringing all the advantages and security of traditional accounts to international payments, with the added benefits of significant advances in user-friendliness and immediacy. Users can open a wallet in the desired currency with just two clicks and use it immediately. 

FXWallets is being added as a feature to CaixaBank FXNow, the bank’s platform for managing the sale and purchase of currencies. CaixaBank FXNow has been servicing CaixaBank's business customers in Spain since its creation in 2020. FXNow was also launched in Morocco in 2022 and, via BPI, in Portugal in 2023.


IFRS issues reminder of accounting requirements for climate-related matters in financial statements

The IFRS Foundation has published an updated version of its educational material developed to help companies determine how to consider climate-related matters when preparing their financial statements applying IFRS Accounting Standards.

IFRS Accounting Standards are developed by the International Accounting Standards Board (IASB) and do not refer explicitly to climate-related matters. However, the IASB’s Standards require companies to consider climate-related matters in their financial statements if the effects of those matters are material. The educational material sets out examples of situations in which companies applying the IASB’s Standards might need to consider the effects of climate-related matters in their financial statements.

The educational material was first published in 2020. The IFRS Foundation is publishing this updated version in light of developments, including the International Sustainability Standards Board’s (ISSB) inaugural IFRS Sustainability Disclosure Standards, issued on 26 June 2023. Consideration of the ISSB’s Standards and the educational materials may help companies better identify matters, including climate change, that affect the financial statements and help companies apply IFRS Accounting Standards.  

The IASB is also working on a project on Climate-related Risks in the Financial Statements to explore whether and how financial statements can better communicate information about climate-related risks. The IASB will consider whether to include in the scope of the project sustainability-related risks and opportunities beyond those related to climate.

Educational material is also available on how the IFRS for SMEs Accounting Standard requires companies to consider climate-related matters that have a material effect on the financial statements.


ADGM implements sustainable finance regulatory framework

Abu Dhabi Global Market (ADGM) has announced the implementation of its sustainable finance regulatory framework with immediate effect, following significant support received through public consultation. The framework encompasses rules on sustainability-orientated investment funds, managed portfolios and bonds, and requirements for environmental, social and governance (ESG) disclosures by ADGM companies. The measures are designed to accelerate the growth of a sustainable finance ecosystem in the jurisdiction and support the UAE’s transition to net zero greenhouse gas emissions.

The framework for green and climate transition funds and portfolios, green and sustainability-linked bonds and sukuks is a significant step in enabling capital to be channelled towards financing the transition to net zero. 

To recognise products and services aiding the transition, ADGM will confer a designation on those that purport to meet its robust minimum standards. It will also permit ADGM’s “designation mark” to be used in marketing materials and client communications. A designation mark aims to give investors confidence that those products and services purport to meet ADGM’s minimum standards, catalysing investors to channel capital towards the green transition.

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