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By Michael Chambers, Head of Prudential, Cordium

Having spent the last year running the MiFID II marathon, buy-side compliance officers could be forgiven for having taken their eyes off some of the other regulatory changes that have taken place.

Under-the-radar changes always present a risk of non-compliance and the FCA’s revised wind-down guidelines are a case in point. Published to little fanfare a year ago, they could be a significant trap for the unwary.

As increasing numbers of firms have seen, the results of a Supervisory Review and Evaluation Process (SREP), where a firm’s Internal Capital Adequacy Assessment Process (ICAAP) is scrutinised in granular detail by the regulator, can be costly in terms of management time taken, external report required and, not least incremental capital requirements.

Following their guidance, the FCA expects that detailed plans and costings to execute an orderly wind down are a principal consideration within the ICAAP.  So any negative findings of an SREP can easily lead to the regulator setting punitive ‘scalars’ on the firm’s capital requirement. In plain English, this means that neglecting the revised guidelines can result in a need to hold more capital than would have been necessary had a thorough wind down plan been conducted in the first place.

It seems many smaller hedge fund managers/investment firms have been operating with a false sense of security, lulled by the fact that these have been billed as guidelines rather than rules, by the belief that they don’t apply to firms their size, or by both.

So what are the revised guidelines, what do they mean for hedge fund managers/investment firms and what can firms do to protect themselves?

New wind down guidelines

After a brief consultation, the new guidelines came into force in late 2016. Simply put, they provide guidance to firms setting out their strategies for a variety of triggers for an orderly wind down, should the business no longer be able to continue.

Core to those strategies are capital requirements – the money set aside in order to implement the strategy, should it become necessary. The issue here is that the FCA found many firms to be taking far too aggressive an approach, significantly underestimating how much they needed in reserve.

Common mistakes include failing to take into account supplier relationships such as office leases or external consultancy services. In the event of a wind-down,  hedge fund managers/investment firms might understandably be prioritising investor protection, but if they’re one year into a five-year lease, the landlord might take a dim view of that attitude.

Staff are also a key consideration. Many firms budget for staff costs at current levels, but how many people are inclined to stick around a company in the process of shutting up shop when they could be seeking their next role? It’s quite likely that companies may have to incentivise key people more in order to secure their services for the duration of the orderly wind down.

And there’s a lot of misunderstanding around that word: orderly. Many interpret this as a strategic exit or planned wind-down; one the firm has chosen. However, that’s not the intended meaning. Orderly refers to the execution of the wind-down, not the reason for it. It could be precipitated by an unpredicted, catastrophic event – but the FCA still wants to know that there is a fully developed, realistic and executable plan in place. This common misperception leads firms to both underestimate their capital requirements and fail to assess the full breadth of risks they face.

But they’re guidelines – why does this matter?

These are guidelines on what the FCA expects to be in a wind-down assessment, but that does not mean the assessment itself is optional.

Firms throughout Europe must carry out and document an ICAAP. UK firms do not submit this ICAAP to the FCA but are held to account by the requirement to submit, once a year, a questionnaire via the regulator’s GABRIEL system. For many firms which are not supervised on a relationship basis, this is the only communication they have with the regulator, so it needs to be right. The questionnaire includes questions around the firm’s wind-down assessment including how long it would take and how much it would cost (gross and net). So the wind-down assessment is very much mandatory, even if not directly mandated.

And the FCA is taking it seriously. There have been cases where the FCA has judged the wind-down assessment to be too aggressive or insufficiently comprehensive, and enforced higher capital requirements as a result – in most cases higher than they would have been if correct in the first place.

What’s a firm to do?

The first thing to do is to canvass input and opinion from a variety of internal stakeholders. Chances are that different people throughout the firm with different viewpoints will have different perspectives over what that end-point might look like. It may also be advantageous to consult externally as this will help benchmark against the industry. We are talking about envisaging and planning for scenarios that spell out the end of the business and many will have access to pertinent information that others don’t.

By having those conversations and – crucially – documenting them, firms will be better prepared for a range of scenarios and be able to demonstrate a sensible approach to the FCA.

The second thing to do may well follow naturally from the first, but that is to make sure wind down scenarios are sufficiently conservative. Being too aggressive on how quickly and cheaply a wind down process can happen is a red flag to the regulator.

It’s also important to make sure that plans are kept up to date. This is easier said than done. Imagine a scenario where the annual wind down plan was created six months ago, and someone signs the company up to a strict and significant supplier contract. The two are seemingly unrelated, but that employee may have unknowingly put the firm in breach of its capital requirements based on its new obligations. It’s essential to put in place processes where wind down assessments are updated as circumstances change.

So, wind down assessments: certainly not as big, scary or all-encompassing as MiFID II, but the SREP regime means that it isn’t safe to ignore the regulator’s expectation that the revised guidelines will be followed. With new regulatory requirements coming thick and fast, it’s tempting to focus energies on the headline threats. However, whether by going it alone or enlisting the help of third party expertise, the possibility of an SREP means that hedge fund managers/investment firms shouldn’t take their eyes off other material changes such as the FCA’s revised wind down guidelines.

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Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up



Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up 1

By Sergio Goncalves

LISBON (Reuters) – Portugal will start producing green hydrogen by the end of 2022 and already has private investment worth around 10 billion euros ($12 billion) lined up for eight projects that are expected to move forward, Environment Minister Joao Matos Fernandes said.

He told Reuters in a telephone interview there were also several “pre-contracts for the purchase and assembly of electrolysers” to produce the zero-carbon fuel made by electrolysis out of water using renewable wind and solar energy.

Such hydrogen is more expensive to extract than the heavily polluting conventional method of using heat and chemical reactions to release hydrogen from coal or natural gas, known as brown and grey hydrogen respectively.

Hydrogen is now mostly used in the oil refining industry and to produce ammonia fertilisers, but sectors such as steelmaking, transportation and chemicals are beginning to develop large-scale hydrogen applications to gradually replace fossil fuels as countries try to reduce pollution.

The European Commission has mapped out a plan to scale up green hydrogen projects across polluting sectors to meet a net zero emissions goal by 2050 and become a leader in a market analysts expect to be worth $1.2 trillion by that date.

“By the end of 2022, there will certainly be green hydrogen production in Portugal,” Matos Fernandes said. “Green hydrogen will, over time, allow Portugal to completely change its paradigm and become an energy exporting country.”

He said seven groups had submitted applications under Europe’s IPCEI scheme for common-interest projects to make part of a planned export-oriented “hydrogen cluster” near the port of Sines, from where hydrogen could be shipped to Rotterdam. Total investment there is estimated at some 7 billion euros.

A consortium including Portugal’s main utility EDP, oil company Galp, world’s largest wind turbine maker Vestas, among others, is behind one of the projects.

In Estarreja in north Portugal, local firm Bondalti Chemicals aims to invest 2.4 billion euros in a hydrogen plant.

Altogether, these envisage an installed capacity of over 1,000 megawatts (MW).

Matos Fernandes said Portugal was also negotiating with Spain the construction of a pipeline for renewable gases, including hydrogen, from Sines to France, crossing Spain.


Spain and Portugal also want to develop an ambitious cross-border lithium project taking advantage of the geographical proximity of their lithium deposits and aiming to cover the entire value chain from mining to refining, cell and battery manufacturing to battery recycling, he said.

Portugal is already a large producer of low-grade lithium mainly for the ceramics industry, but is preparing to make higher-grade metal used in electric car batteries.

A much-awaited licensing tender for lithium-bearing areas that has been delayed by the COVID-19 pandemic should take place by the year-end, Matos Fernandes said.

He promised the tender would address environmental concerns by local communities and there would be no lithium mining “at any cost”.

The minister also said Portugal would use its six-month presidency of the Council of the European Union to finalise a landmark law that would make the bloc’s climate targets irreversible and speed up emissions cuts this decade, expecting it to be approved in the first half of 2021.

(Reporting by Sergio Goncalves; Editing by Andrei Khalip and David Evans)


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Under fire in EU, AstraZeneca CEO says ‘hopefully’ will meet vaccine supply goals



Under fire in EU, AstraZeneca CEO says 'hopefully' will meet vaccine supply goals 2

BRUSSELS (Reuters) – AstraZeneca boss Pascal Soriot said on Thursday he hoped to meet the European Union’s expectations on the number of COVID-19 vaccines the company can deliver to the bloc in the second quarter, after big cuts in the first three months of the year.

The Anglo-Swedish drugmaker has been under fire in the EU for its delayed supplies of shots to the 27-nation bloc, which ordered 300 million doses by the end of June.

“We are working 24/7 to improve delivery and hopefully catch up to the expectations for Q2,” Soriot told EU lawmakers in a public hearing.

Under its contract with the EU, the company has committed to delivering 180 million doses in the second quarter.

Soriot did not mention the 180 million target, but said he was confident the company will be able to increase production in the second quarter using factories outside the EU that had no production problems, including in the United States.

He confirmed the company was trying to get 40 million doses of the COVID-19 vaccine to the EU by the end of March, which is less than half the amount it promised for the quarter in its contract.

The EU, which has fallen far behind the United States and former member Britain in vaccinating its public, has repeatedly urged the firm to deliver more.

Lower-than-expected yields – the amount of vaccine that can be produced from base ingredients – at its factories hurt output in the first three months.

Asked about supplies to Britain, which relies on the same factories used by the EU, Soriot said the former EU member with a population of around 66 million was smaller, and noted that most doses produced in the EU were used to serve the EU which has a population of about 450 million.

Executives from rival drugmakers that have developed or are testing COVID-19 vaccines, including Moderna Inc and CureVac NV were also part of the panel.

But most questions were directed at Soriot amid anger that the company has failed to deliver promised vaccine quantities to the bloc on schedule.

Moderna Chief Executive Officer Stephane Bancel said the company has experienced fluctuations as the U.S. biotech group ramps up output of its COVID-19 vaccine.

He said usually a company would stockpile product ahead of a launch, but it is shipping every dose it makes, leaving it without any spare inventory.

His comments came a day after the company increased its output target for this year and 2022 as it invests in additional manufacturing capacity.

(Reporting by Josephine Mason in London and Francesco Guarascio in Brussels; Editing by Susan Fenton, Bill Berkrot and Keith Weir)


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Shift to sun, ski and suburbs gives Airbnb advantage over hotels



Shift to sun, ski and suburbs gives Airbnb advantage over hotels 3

By Ankit Ajmera

(Reuters) – Airbnb’s quarterly results are likely to show the pandemic may have helped the home rental company lure leisure travelers away from big hotels during the global travel collapse of 2020.

Weary of being locked up in their homes for months, travelers hit the road and booked homes and cottages on Airbnb, while avoiding flights and downtown hotels, analysts said.

Airbnb accounted for 18% of the total U.S. lodging revenue in 2020, up from 11.5% in 2019, data from hotel analytics provider STR and vacation rental data company AirDNA showed.

It outperformed the hotel industry and online travel agents such as Expedia and thanks to its greater offer of ‘sun, ski, and suburban’ rental homes, Cowen & Co analysts said.

Shift to sun, ski and suburbs gives Airbnb advantage over hotels 4

(Graphic: Airbnb grabs bigger share of U.S. lodging market in pandemic:

For an interactive graphic, click here:


In 2019, about 90% of Airbnb’s bookings came from leisure travels compared with about 20%-30% for large hotels chains, including Marriott and Hilton, that rely on business travel to grow their profits.

“Unfortunately, the hotel operators do not have as much supply in locations where people are willing to travel,” said Jamie Lane, vice president of research at AirDNA.

Lane said with mass vaccinations later in the year, the share of alternative accommodations including Airbnb will drop before continuing to grow at 2%-3% per year once normal travel patterns return.

Shift to sun, ski and suburbs gives Airbnb advantage over hotels 5

(Graphic: Airbnb U.S. sales against top hotels:

For an interactive graphic, click here:


* The San Francisco-based company is expected to report gross bookings of $23.10 billion in 2020, down from about $38 billion a year earlier, according to the mean estimate of 12 analysts according to Refinitiv; gross bookings are seen rising by 50% in 2021.

* Analysts’ mean estimate for Airbnb’s full-year net loss is $3.52 billion, bigger than a loss of $674.3 million a year earlier. Full-year revenue is expected to drop 32% to $3.27 billion.


* Of 34 brokerages, 20 rate Airbnb’s stock “hold”, 12 “buy” or higher and two “sell” or lower

* Wall Street’s median 12-month price target for Airbnb is $156​, about 22% below its last closing price of $200.20.

* The company’s stock has nearly tripled since listing in December

Shift to sun, ski and suburbs gives Airbnb advantage over hotels 6

(Graphic: Airbnb’s stock has nearly tripled since debut:

For an interactive graphic, click here:

(Reporting by Ankit Ajmera in Bengaluru; Editing by Sweta Singh and Saumyadeb Chakrabarty)

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