A last-minute addition to the bill created turmoil in the crypto-business community. The amended version of MiCA required that all currency providers submit detailed proposals about how they would comply with environmental sustainability standards, outlawing any operations with the cryptocurrencies that rely on the proof-of-work (PoW) protocol, including major players like Bitcoin and Ethereum. Ultimately, the proof-of-work ban did not find a majority vote, with 32 Members of the European Parliament against and 24 in favour.

MiCA was adopted minus the amendment that would have effectively banned proof-of-work-based cryptocurrencies. The bill will continue its journey through the E.U. institutions, aiming to harmonise the cryptocurrency laws, allowing companies to access cross border Europe.

To deep dive into the impacts of MiCA, the knock-on effect of Monday’s vote and the prospects of the industry, we asked a few questions to Arnab Naskar, Co-Founder and Business Lead at STOKR.

Let’s start with the Hot News, Arnab. Yesterday, Monday, March 14, Europe finally rejected the proposal limiting PoW cryptos such as Bitcoin after fighting during the weekend. Indeed, many stakeholders within the industry have stood up against this measure, including you. Could you explain in detail what the amendment was about? And what was at stake?

Arnab Naskar: The additional amendment of the MiCA bill, highly debated at the European Parliament on Monday 14, and fortunately disregarded, would have de-facto banned transactions and mining of cryptocurrencies like Bitcoin or Ethereum using proof-of-work or PoW systems. It was a political statement. You need to understand that Bitcoin and other cryptocurrencies are using proof-of-work to verify the data on the blockchain. Indeed, Bitcoin miners must execute a proof of work covering all of the data included in a new block for network members to accept it. This process consumes quite a lot of computational power. The underlying argument behind this controversial amendment was that PoW systems, by consuming a significant amount of energy, negatively impact the environment. This view is a miscomprehension of the crypto industry, its realities, and its following developments. A ban or a heavy-handed regulation could harm the European market and the crypto-industry. That is why we witnessed such an engagement from the crypto community over the weekend.

As part of the discussion yesterday, Europe rejected a proposal limiting PoW cryptos such as Bitcoin. Nevertheless, by January 1 2025, the European Commission would present a new proposal “to include in the E.U. sustainable finance taxonomy any crypto-asset mining activities that contribute substantially to climate change mitigation and adaptation”. What does it mean for the industry?

Arnab Naskar: This certainly means that the issue of Bitcoin mining and its ban may return and haunt us back. The political divisions remain in regulating crypto’s environmental impact, and the late amendment proved it that Greens & S&D are not willing to stand down. If not through MiCA, it will be under other legislation. Bitcoin’s energy consumption is attributed to Bitcoin mining, using a proof-of-work (PoW) mechanism. That is true. But contrary to the mainstream belief, the impact of bitcoin on the environment is far less dramatic than what we can read or hear. The global Bitcoin mining industry has a small environmental footprint relative to the aviation industry, the electric fans, or the Data Centres. Globally, the western jurisdictions have a much higher penetration of renewables in their generation mix, reducing the carbon impact of the Bitcoin mining network. Implementing an european ban would have the opposite effect on limiting carbon emissions from Bitcoin mining. Indeed, it would drive miners further into the jurisdictions where fossil fuels are heavily subsidised, thereby increasing emissions.
Creating the shift where crypto-asset mining activities are not considered as polluting activities will require time, education, and advocacy commitment. The industry has a role in explaining and demystifying the impact of crypto for the benefit of all. As industry players, we will need to monitor the legal evolution closely. Industry associations such as ADAN, founded in January 2020, could be a great support to convey the message of the Industry. ADAN’s vocation is to “promote crypto-assets and blockchain technologies in Europe in the service of a new free and open economy and to federate the industry members to foster its development by ensuring that its significant societal challenges are met.”
As a footnote, I would recommend to read the very insightful twitter thread of Jean-Marie Mognetti, Co-Founder & CEO of CoinSharesCo https://twitter.com/jmmognetti/status/1503047004032753669

After the vote, Stefan Berger, the lead MEP, said Monday, March 14: “By adopting the MiCA report, the European Parliament has paved the way for an innovation-friendly crypto-regulation that can set standards worldwide. The regulation being created is pioneering in terms of innovation, consumer protection, legal certainty and the establishment of reliable supervisory structures in crypto-assets. Many countries worldwide will now take a close look at MiCA.” Would you say that Europe, by adopting MiCA, definitely became the clear leader in crypto worldwide?

Arnab Naskar: MiCA is the very first European-level legislation on cryptocurrency. Its adoption will provide a set of rules that regulate cryptocurrencies across the European Member States, including requirements about the issuance of digital assets, the authorisation of crypto-asset service providers, and consumer protection rules. MiCA, being a regulation, will harmonise the cryptocurrency laws, allowing companies to access cross border Europe, which is very positive. As stated by Stefan Berger, “MiCA has the potential to serve as a global role model”. Of course, the immediate next step for MiCA is to enter into a discussion between the E.U. Parliament, Commission and Council, where each institution will defend its position on the legislation. Nevertheless, with the U.K. moving on a separate regulatory path because of Brexit and the U.S. being stringent on the regulations regarding cryptos, it is not an understatement to say that Europe has a clear leadership role in the crypto world to play.

Visit STOKR, the EU’s pioneering digital investment marketplace for alternative assets.
https://stokr.io/

L’impact sur les marchés

Que s’est-il réellement passé sur les marchés ? Un investisseur européen, affecté de près par les événements, peut avoir l’impression que la crise a fait trembler le marché. Il est vrai que les matières premières, blé, gaz, électricité, métaux, se sont envolées et le baril de pétrole a frôlé les 130 dollars contre à peine plus de 70 en début d’année.

L’impact sur les actions est en réalité mesuré. Au soir du 11 mars, le Stoxx 600 – représentant la majeure partie des capitalisations européennes – ne perdait que 4,3% depuis le 24 février matin. Aux Etats-Unis, le S&P 500 (en dollars) n’a pas reculé pas sur cette période ! Mais les actions émergentes ont perdu près de 10% (en dollars), affectées par les actions russes, mais aussi par les actions chinoises, qui font face à d’autres difficultés. Cependant, rares sont les investisseurs européens massivement investis sur ces marchés.

Sur le marché obligataire, les performances sont tout juste négatives sur la même période : entre -1 et -2% sur le crédit européen (en fonction de sa notation). Les obligations d’Etat sont quasiment inchangées, après une substantielle appréciation les premiers jours de la crise.

La victime la plus évidente est l’euro, qui perd près de 3% par rapport au dollar. Pour un investisseur diversifié, c’est plutôt une bonne nouvelle, car ses actifs en dollars s’apprécient d’autant. Et les actions européennes bénéficient en général d’un euro faible.

Si les marchés actions, crédit ou d’obligations d’Etat sont nettement négatifs depuis le début de l’année, la majeure partie de ces pertes a été enregistrée avant cette crise. L’inflation était déjà présente. Les banques centrales indiquaient un prochain resserrement monétaire. Les actions à forte valorisation étaient déjà sous pression en raison des politiques monétaires.

En synthèse, la crise ukrainienne n’a pas eu jusqu’ici de fort impact sur la plupart des marchés mondiaux. Les banques centrales en ont fait bien davantage.

Quelles perspectives ?

Le chemin que prendront les marchés ces prochains jours sera a priori dicté par deux principaux facteurs – bien que d’autres, inattendus, puissent surgir à tout moment : le développement du conflit ukrainien et les banques centrales.

Sur le premier, il serait présomptueux de prédire avec détermination un quelconque déroulement. S’il est possible que l’armée russe gagne encore du terrain, une victoire russe totale et rapide, comme V. Poutine l’envisageait au début du conflit, semble peu réaliste. L’enlisement, accompagné d’une instabilité chronique, sans être très menaçante à l’échelle mondiale, l’est selon nous davantage.

D’autres scénarios mais a priori moins probables sont envisageables, comme une victoire russe rapide, ou au contraire un recul. Dans le premier cas, sa supériorité pourrait nourrir de nouvelles ambitions russes et générer de nouvelles ripostes économiques voire militaires par l’Occident. Dans le second cas, les opérations russes pourraient gagner en violence, pour ne pas sembler perdant. Tout dépendrait alors de l’attitudes des autres géants de la planète. Ces deux scénarios nous semblent les moins probables à court terme aujourd’hui.

Dans le cas qui nous semble plus probable – déjà partiellement à l’œuvre – d’une forme d’enlisement, les principaux déterminants du marché vont redevenir les fondamentaux macroéconomiques, en particulier l’inflation et la croissance, et la réaction des banques centrales à ces facteurs.

Or ces deux aspects dépendront en partie d’une variable clé : la durée du conflit. Plus il durera, plus l’ensemble des matières premières devrait rester à un niveau élevé, ce qui soutiendrait l’inflation et réduirait mécaniquement la croissance. Les banques centrales sont donc en partie dépendantes de la durée du conflit. La BCE vient d’intégrer la guerre dans ses prévisions, en augmentant ses anticipations d’inflation1 et dégradant ses attentes de croissance2. La Fed fera de même à l’issue de sa réunion du 16 mars. Nul doute qu’elle ira dans le même sens.

En raison de cette inflation élevée, les deux banques ont prévu d’emprunter, à des rythmes différents, la voie d’un resserrement monétaire graduel. Ce qui impose de la prudence sur les actions, notamment les actions à forte valorisation ; et une totale prudence à l’égard des obligations d’Etat, notamment américaines, qui perdent leur principal acheteur de ces dernières années – la Fed. Le déficit de croissance n’empêchera pas forcément les taux de monter.

Dans le détail, la situation pourrait être différente entre les Etats-Unis et l’Europe. Si l’inflation européenne est surtout due aux matières premières et à certains matériaux industriels, l’inflation américaine est due, en outre, à la force de la demande et au prix du logement. La réaction au premier type d’inflation n’impose pas un resserrement drastique, car une banque centrale ne peut rien contre le prix des matières premières. La réaction au second type d’inflation, en revanche, est à la portée d’une banque centrale, qui peut freiner l’inflation en ralentissant la formation de crédit. La Fed devrait s’y engager. Dans ce cas, les titres à valorisation élevée pourraient être davantage affectés que les titres décotés, prolongeant la tendance à l’œuvre depuis plusieurs mois.

Au niveau des résultats d’entreprises, une discrimination a déjà été faite entre les entreprises et les secteurs réalisant directement une large part de leur chiffre d’affaires en Russie ou en Ukraine : les banques ou le secteur automobile européen ont davantage souffert que le marché. En revanche, la hausse des matières premières et la hausse des coûts induite est encore complexe à mesurer. Dans un contexte inflationniste persistant, il faut être discriminant et s’intéresser aux sociétés à même de préserver leur marge et donc de répercuter l’inflation en aval sur leur prix de vente.

Dans tous les cas, la prudence s’impose, mais n’implique pas selon nous de rester totalement en dehors des marchés, sauf en cas d’escalade (a priori improbable) du conflit. Dans un scénario médian en effet, l’inflation grignote la valeur de tout actif non risqué. Il est donc raisonnable de s’en remettre à moyen terme au marché actions, malgré sa volatilité. En particulier à la gestion active, attentive à la valorisation des titres. Après tout, les actions sont ressorties par le haut de toutes les crises. Seule la trajectoire empruntée n’est pas prévisible.

Les opinions émises dans le document correspondent aux anticipations de marché LFDE au moment de la publication. Elles sont susceptibles d’évoluer en fonction des conditions de marché et ne sauraient en aucun cas engager la responsabilité de LFDE.Investir sur les marchés financiers comporte des risques et notamment un risque de perte en capital.

Le STATEC publie la première estimation détaillée du Produit Intérieur Brut (PIB) pour le quatrième trimestre 2021 et pour l’année 2021 dans son ensemble, ainsi que des chiffres révisés pour les trimestres précédents. Les séries trimestrielles du PIB et des principaux agrégats sont corrigées des variations saisonnières.

Le PIB selon l’approche « production »
La valeur ajoutée des activités financières et d’assurance diminue de 0.4% par rapport au trimestre précédent. L’évolution des autres branches, par ordre d’importance dans le PIB, se présente comme suit: « Commerce; transports; hébergement et restauration » -1.8%, « Services aux entreprises et location » +1.8%, « Activités immobilières » +1.9%, « Industrie, y compris énergie et distribution d’eau » +5.0%, « Construction » -2.8%, et « Administration publique, éducation et santé » +1.3% (voir tableau 2).

Le PIB selon l’approche « dépenses »
Par rapport au troisième trimestre 2021, la dépense de consommation finale des ménages et des institutions sans but lucratif au service des ménages a diminué de 0.5%, alors que celle des administrations publiques a augmenté de 2.5%. La formation brute de capital a augmenté de 6.4%. Les exportations ont augmenté de 2.2% et les importations de 4.2% (voir tableau 3).

Cette réorganisation répond aux besoins accrus des institutions qui se trouvent dans un contexte de profonde transformation, au sein d’un pays en pleine expansion économique et démographique où les attentes des citoyens envers un système administratif digitalisé et accessible sont grandissantes.

En ligne avec les ambitions du cabinet au niveau mondial, « Building a Better Working World » ; la volonté d’EY est d’accompagner les transformations de nos clients et de leur environnement, au travers de la puissance du capital humain, de la technologie, et de l’innovation pour délivrer une plus grande valeur à long terme, mesurée au travers du prisme des citoyens, des employés, des parties prenantes et des actionnaires, et au sens large, de la société.

Pour toujours mieux accompagner le gouvernement et les administrations dans leurs grands défis, EY peut s’appuyer sur l’expérience d’un réseau de 20.000 salariés dédiés au Secteur Public dans plus de 100 pays, et sur la confiance de longue date de ses partenaires au Luxembourg.

Les actions conjointes entre le secteur privé et le secteur public contribuent à l’attractivité du pays sur la scène internationale. En 2022, pour la première fois, le baromètre de l’attractivité d’EY – déjà en place à travers l’Europe, sera déployé au Luxembourg. Cette étude menée par EY est reconnue comme une source essentielle d’informations sur les principaux atouts d’un pays, notamment pour attirer les investissements directs étrangers (IDE). Elle permet d’étudier l’attractivité d’un pays en tant que destination d’investissement, et offre aux entreprises et aux gouvernements des données fiables leur permettant de définir des stratégies économiques et politiques favorisant la croissance.

Pierre-Jean Forrer, Principal, a plus de 30 ans d’expérience au service de grandes entreprises et multinationales, petites et moyennes entreprises de services et de production, start-ups technologiques et fintech, mais aussi des organisations publiques internationales et entités du secteur public local en France, au Moyen-Orient et au Luxembourg (ministères, administrations, entreprises publiques). Jusqu’à sa nomination, il était à la tête de l’équipe de conseil en transformation technologique chez EY Luxembourg depuis mars 2017.

NFTs: trend that lasts or buzz that fades away?

To answer this question, let’s start with some basics.

What is an NFT?

NFT is a digital asset, standing for Non-Fungible Token. It means that it is unique and cannot be replaced with something else, unlike other cryptocurrencies considered fungible, meaning that they can be traded or exchanged, one for another. For example, one bitcoin is always equal in value to another bitcoin. NFTs shifted the crypto paradigm by making each token unique and irreplaceable.

How do NFTs work?

Put it simply, most NFTs are part of the Ethereum blockchain, although other blockchains support them as well. An NFT is created or “minted” from digital objects that represent tangible and intangible items from art, music, in-game items, and videos.

What’s the point of NFTs?

As a buyer, you can imagine NFT as your “personal art collection”, but instead of having an actual painting or an exclusive music record, you buy a digital file. With your NFT, you get exclusive ownership rights, meaning that NFTs can have only one owner at a time. NFTs’ unique data allows you to verify ownership, transfer tokens between owners and store specific information. For example, an artist can sign their artwork by including their signature in an NFT’s metadata, potentially increasing your artwork’s value. NFTs allow content creators to build a unique opportunity to monetize their art as an artist.

NFT 2.0, at the edge of a new “market frontier.”

The uniqueness and non-duplicate nature of NFTs create, by definition, scarcity and makes these cryptographic assets more valuable. If we have witnessed some turbulence within the market, it is unlikely to say that it is the end of the NFT market, but more likely the edge of a new “market frontier”. In this context, Farvest, creator of the global tech conference ICT Spring, which is taking place in Luxembourg on 30 June and 1 July 2022, has set up an exclusive partnership with Luxembourgish artist Sumo, Metaverse pioneer Mathias Keune, and Luxembourg Fintech Hub, the LHoFT, to offer the event’s participants a unique dive into the world of NFTs. Sumo, who recently designed Luxair’s Boeing 737, will create for this occasion a unique NFT collection called “Beyond Frontiers.” On-site, each participant will be granted a digital character, and they will be able to contemplate physical objects and broadcast them in a virtual exhibition where Sumo’s works will appear in a metaverse universe created by Mathias Keune. The latter recently launched a metaverse for Luxembourg called the Duchy. This partnership between significant players in Luxembourg is meant to democratise the use of these new technologies and demystify the craze around NFTs, showcasing the best insights of a fruitful collaboration between the “digital” and “physical” worlds, echoing one of the central themes of ICT Spring: “Beyond Frontiers.” Discover www.ictspring.com

[1] The great NFT sell-off: has the digital collectibles craze hit its peak? By Financial Times

https://www.ft.com/content/46349496-790a-4223-8c65-d6a0bde897bc

The Russian invasion has led to fears of disruptions in the supply of raw materials and goods from the two countries in conflict. It reinforced a global inflationary surge, which was already being fuelled by factors such as pandemic-related supply chain disruptions, raw material shortages, high energy demand, lack of skilled labour and other geopolitical tensions. In Europe, the energy transition also contributed to a significant increase in the price of classic energy products. The Russian-Ukrainian conflict highlights the fragility of many European economies in particular, which remain largely dependent on imported resources. All of these cyclical, structural and political factors leave no doubt that the problems associated with high inflation will continue. Similarly, instead of looking forward to an economic recovery after two years of pandemic, we are faced with a war in Europe which, alongside the human tragedy, raises fears of ‘stagflation’ and recession at the macro-economic level.

In such a situation, imbalances between supply and demand in several markets and scarcity of resources are significant worrying developments.

It is clear that the economic model that is still the most popular at the global level, namely the linear model where resources are extracted, transformed, consumed and then end up as waste, is now obsolete. Not only does it no longer allow for dynamic growth rates in most economies (the global growth rate has barely exceeded 5.5% since the 1980s [2]), but its very functioning is threatened by the existence of a limited quantity of resources, the scarcity of which is increasingly apparent in the form of shortages (e.g. semi-conductors, copper, maize, skilled labour, etc.), combined with record global inflation rates. Driven by soaring energy prices and supply chain bottlenecks, the annual global inflation rate is approaching 8%, while the European Union’s inflation rate hit a 25-year high of 5.1% [3] in January, reconfirmed by Eurostat in late February. This rate is well above the 2% target set by the European Central Bank (ECB).

The conventional, linear economic model has helped most of the world’s economies to prosper. However, it has only worked because of the availability of cheap and abundant raw materials. Today, the circumstances are different as resources become scarce, while the impact of their exploitation on the climate, nature and the environment becomes increasingly negative.

Following the example of the countries working to achieve the United Nation’s 17 sustainable development goals for 2030, Luxembourg has for several years now been working on a vast project to move from an extensive economy – whose prosperity is largely dependent on an increased need for production factors of all kinds such as human, natural or capital resources – to an economy characterised by more qualitative growth, capable of ‘meeting the needs of the present without compromising the capacity of future generations to meet their own needs’, i.e. a resilient model enabling a high standard of living to be maintained over the long term.

Possible avenues to re-establish more sustainable growth have thus been researched. As a result, the circular economy, an emerging field in the 1970s, has received renewed interest in the last decade by virtue of its nature as a ‘continuous positive development cycle that preserves and develops natural capital, optimises resource efficiency and minimises systemic risks through the management of resource stocks and flows [and as] a system that remains efficient at any scale’.[4] The circular economy is therefore part of the sustainable development framework and is a promising successor to the linear model in addressing the challenges of the latter. To this end, it includes at the heart of its framework the principles of optimising resource consumption, eliminating the concept of waste through systematic reuse and mitigating environmental impact.

Not only does the practice of the circular economy help build more respectful and resource-conscious growth, but it can also act as an economic driver by generating new jobs, activities and products based on new business models and practices. The activities related to sustainable procurement, the markets for second-hand and refurbished products, the substitution of purchasing with rental services (‘product as a service’) and car-sharing are all concrete examples of activities that have recently developed significantly and that have their origins in the principles of the circular economy. In the European Union alone, for example, it is estimated that the implementation of this new economic model could lead to a gain in resource productivity of more than 30% by 2030 [5] and the creation of more than 4 million jobs. [6] This is a real opportunity to revitalise Luxembourg’s productivity, which was assessed by the latest report of the National Productivity Council as being high, but stagnating. The circular economy creates a real win-win situation, so it is not surprising that it is currently one of the key themes of the European Commission’s working programme.

In the Grand Duchy, we are not left behind. According to the ‘Luxembourg as a knowledge capital and testing ground for the circular economy’ [7] study carried out by the EPEA international institute and based on the consultation of more than 50 stakeholders, the deployment of the principles related to the circular economy, applied to a variety of diverse sectors, has the potential to generate savings of EUR 300 million to 1 billion in raw materials per year. There is a strong national political will to establish the circular economy (cf. coalition agreement 2018-2023 that pursues resilience through more than twenty points related to the circular economy, implementing a dedicated strategy [8] aiming to make Luxembourg a pole of excellence in this field).

The health, economic and now political crises are undoubtedly disrupting the lives of households and businesses. They are driving up costs, reducing profitability and impacting the ability to invest in the digital and energy transitions.  In such an unprecedented context, capturing monetary, temporal and human resources in order to initiate a transition towards a more sustainable, but also radically different, business model is a major challenge. The monetary benefits (e.g. raw material savings, better resilience to price volatility, improved margins…) and non-monetary benefits (e.g. positive market differentiation, better competitiveness…) of the circular economy are numerous and proven. A quantitative study carried out in 2014 by the eco-design unit of ADEME (French Agency for Ecological Transition) reveals, for example, that the practice of eco-design (a circular economy approach that consists of integrating, from the design stage, the environmental impacts of a good or service throughout its life cycle) has been profitable for 96% of the companies that have implemented it. More specifically, 45% of these companies have seen their profits increase, 86% have seen an improvement in their image or reputation, and 41% have seen an increase in employee motivation or pride.

The circular economy also has the advantage in that it can be implemented in many different ways (e.g. sustainable sourcing, functionality economy, increasing shelf life…). There are many opportunities for a company to take advantage of this, whether by including circular principles in its production and management processes or by developing new business models based on them. Any organisation, regardless of its size, sector of activity, resources or specific characteristics, can thus choose the elements that are most suitable for starting out on its path to greater resilience.

The Chamber of Commerce works actively to support companies in the related processes. For example, it facilitates the participation of companies in international themed trade fairs (e.g. Pollutec), keeps an active regulatory and economic watch in the environmental sector via the publication of its opinions, its barometer of the economy (Baromètre de l’Economie, published in French every six months), working documents (e.g. Actualité & tendances No. 22 and No. 26 on the circular economy), and organises themed conferences. In order to be as close as possible to the situation on the ground, we have also set up a dedicated sustainable development working group, bringing together the various experts and players in the Luxembourg ecosystem to discuss ESG issues and the related regulatory agenda. This working group initiated the ‘Luxembourg sustainable business principles’ [9], which propose a structured support plan for integrating resilience into business processes.

The circular economy is available to everyone!

Its implementation is an opportunity for Luxembourg to recover from the consequences of the pandemic and – in the long run – to better protect itself from an inflationary, energy, raw material and supply crisis such as we are experiencing today.

[1]  https://www.lefigaro.fr/conjoncture/guerre-en-ukraine-l-envolee-du-cours-du-ble-inquiete-le-monde-20220306

[2] World Bank statistics

[3] Eurostat statistics

[4] Adapted from the Ellen McArthur Foundation’s definition that siginificantly contributed to making this a mainstream concept

[5] Institut national (françaInstitut National de l’Économie Circulaire (INEC)

[6] European Comission

[7] EPEA (Environmental Protection Encouragement Agency) study, ‘Luxembourg as a knowledge capital and testing ground for the circular economy’, December 2014

[8] https://gouvernement.lu/dam-assets/documents/actualites/2021/02-fevrier/08-strategie-economie-circulaire/20210208-Strategie-economie-circulaire-Luxembourg.pdf

[9] https://www.cc.lu/toute-linformation/publications/detail/luxembourg-sustainable-business-principles-our-common-2030-goal

The EBA underscores the need for European banks and other financial institutions to implement and comply with the restrictive measures adopted in response to the Ukrainian crisis. Financial institutions are required to assess the adequacy and effectiveness of internal controls and governance to ensure compliance with these measures and to adapt or enhance systems and processes as appropriate.

Competent authorities are working to ensure the adequacy of internal controls and governance in supervised entities. Competent authorities also collaborate closely with supervised institutions, Financial Intelligence Units (FIUs) and law enforcement to identify, monitor and raise awareness of fraud typologies and financial crime and prevent circumvention of the restrictive measures. This will help ensure the homogeneous implementation of the EU restrictive measures across the financial sector and preserve the well-functioning of the Single Market.

The EBA strongly encourages banks and other financial institutions to carefully consider the prudential and business impact of the short and longer-term risks they face in light of these geopolitical developments.  This includes the broader impact of economic and political sanctions as well as the increased economic uncertainty and vulnerabilities arising from the current situation. Cyber risks are a particular area requiring continued attention. Against this background, banks and other financial institutions are encouraged to consider the appropriateness of their business continuity plans.

Relief measures for refugees
On 4 March 2022, EU Ministers activated the Temporary Protection Directive (2001/55/EC) introducing temporary protection and support to persons fleeing Ukraine as a consequence of the war. National competent authorities should ensure that, in line with the Payment Accounts Directive (2014/92/EU), displaced persons from Ukraine have access to open and use payment accounts with basic services.

Financial institutions should follow a risk-based approach when providing financial products in this situation and take advantage of the flexibility enshrined in EU anti-money laundering and countering the financing of terrorism (AML/CFT) law. The EBA Guidelines on money laundering and terrorist financing risk factors and the EBA Opinion on the Customer due diligence on asylum seekers should help financial institutions.

Queries on restrictive measures
The EU Commission will provide clarity and answer queries on the scope and implementation of the adopted restrictive measures. The EBA is supporting the European Commission in collecting and filtering such queries. Queries from competent authorities and credit institutions should be sent to Eba.sanctions.qa@eba.europa.eu

De la finance traditionnelle à la création de Swissborg, Cyrus nous livre le parcours du combattant qu’il a mené avec son co-fondateur pour créer cette start-up. Il revient sur ses racines Iraniennes et nous explique comment partis d’une toute première ICO, ils sont parvenus à fédérer une communauté active et supportive.

Nous détaillons le fonctionnement de la DAO (organisation autonome décentralisée), et la manière dont cette société crypto s’est organisée pour être très réactive face aux besoins de ses utilisateurs.

Cyrus nous explique comment ils ont construit ce “Meta-exchange”, la manière dont il s’y prennent pour offrir la “best execution”, de la liquidité et les meilleurs prix à leurs clients. Nous faisons un focus réglementaire et revenons sur les raisons qui a poussé Swissborg à se faire réguler en Estonie.

Nous allons dans le détail des services et notamment en matière de rendement passif : qu’il s’agisse de “staking” ou de “yield farming”. Nous faisons un focus sur les moyens mis en oeuvre pour conseiller les clients, particulièrement au travers des algorithmes développés en interne dans le cadre des indicateurs Swissborg et de “Cyborg predictor”.

Enfin, nous comprenons le fonctionnement, l’usage et les raisons qui ont conduit Swissborg à émettre son propre token.

Les recommandations de l’invité :

•  The 7 Habits of Highly Effective People de Stephen R. Covey
•  Le film Akira de Katsuhiro Otomo
•  Cryptonites TV d’Alex Fazel

Le podcast est disponible ICI

The second week of conflict in the Ukraine was marked by additional market volatility. Equities are down across the board. The demand for safe-haven assets temporarily pushed the 10-year Treasury down to 1.7% before it retraced to 1.9% amid rising inflationary pressures. Meanwhile, gold has remained well supported, briefly moving above $2000/ounce. Regarding the whole market, uncertainty remains very pronounced, with commodities facing particularly acute pressures. The joint US/UK embargo on Russian oil has pushed the price to $130/bbl high. European gas is up +200% YTD.

After several rounds of negotiations, the conversation on the war front has shifted towards Russian demands regarding the breakaway regions of Donbass and Crimea. However, a quick resolution to the conflict is highly uncertain at this stage. Against this backdrop, market attention is turning to an assessment of the macro outlook.

The conflict will impact growth and inflation, particularly through higher energy and food prices. We have revised our global growth forecasts downward and raised our inflation expectations for 2022.
While it is still difficult to anticipate how macro fundamentals will be impacted by the crisis, we expect Eurozone inflation to remain stubbornly high through the year, particularly for energy and food, negatively affecting both demand and production. This outlook is consistent with a temporary recessionary outcome on the lower end of our projections. Overall, we have downgraded global growth by 0.5% (taking it into a 3.3-3.7% range) for the year.

Global inflation has been revised upward across both EM and DM (by approximately 0.5% over 2022), based on the different weights of the energy component in CPI baskets.
For Eurozone inflation, we now see YoY CPI in a 4.5-5.8% range and at 5.7-6% for the US in 2022. Additionally, the lowest band in our EU growth forecast is consistent with a stagflationary scenario, or even a temporary recession.
There are, however, many divergences across countries, depending both on their level of energy independence and their vulnerability to spill-over effects from sanctions.

European countries’ vulnerability to sanctions against Russia

Source: Amundi Institute, Eurostat, OECD, World Bank. Data are as of 2 March 2022. Economic vulnerability is measured as the share of country gross value added in Russian domestic demand and exports]. Energy dependence on Russia is measured as the share of imports of natural gas, oil and solid fuels from Russia over total imports, weighted by each country’s energy dependence

On a more positive note, China’s economy should continue to support global growth. The country has embarked on a new easing cycle for 2022, in contrast to other economies that have started to wind monetary policy tighter. Last weekend, the Chinese authorities declared a 5.5% target growth rate for this year (above our initial expectations).

Most of the bad news is already priced into the market, but much will depend on the evolution of the crisis.

The economic outlook is deteriorating and what was previously considered the alternative scenario is now materialising. For this reason, we remain somewhat cautious on equities, particularly in Europe.

On the whole, market drawdowns have followed two sequential events:

1. The January sell-off from the peaks reached early in the month were driven by strong inflation figures and consequent monetary policy readjustments. In this context, all inflationary trades performed well in relative terms (value vs growth, EUR vs USD, financial vs commodities, and so on). Hence, the first part of the YTD sell-off was not a reverberation of the shock from Ukraine but rather a normalisation that was already in the cards following an exceptional end to 2021.

2. In February and March, the Russia-Ukraine conflict hit the Eurozone much harder than the US as sentiment regarding the new economic outlook started to sink in. The current total drawdowns (-12% in the US, -17% in the Eurozone, at March 10th) are consistent with a significant correction for risk premiums.

In view of a deceleration in growth and inflation trending higher, and assuming no further deterioration (which at this stage is the most likely scenario, at least for the US), then current levels are appropriate. However, under a mild profit recession scenario in the Eurozone, then markets have not retraced completely

European equity markets have been adjusting to lower economic expectations

Source: Amundi Institute, Bloomberg, Sentix. Data is as of 9 March 2022. Sentix Economic index — Euro Aggregate is a sentiment indicator designed to measure the economic sentiment six months out and it’s based on a survey among institutional and individual investors and analysts

So, basically, the big question marks relate to earnings, and the potential for a severe profit recession. Coming into this year, we were already assuming a normalisation in the EPS trend at a global level. Three months in, risk had tilted to the downside, given the stagflationary impact of the ongoing crisis. We believe EPS should be revised down in Europe more than in the US, as the latter’s GDP growth is expected to be stronger.

• US earnings outlook: US growth above 3% has generally been sufficient to achieve positive earnings. So, through the current lens, an earnings recession can likely be avoided. Here, we expect EPS growth to range around 0-8%.

• European earnings outlook: Europe is more influenced by global growth compared to the US. Our latest global growth forecast is between 3.3% and 3.7%. Although 3% global growth is usually sufficient to sustain positive earnings growth in Europe, this still hinges on the impact and duration of the conflict. We can expect European earnings growth to be anywhere between -5% and +5%. Hence, a temporary earnings recession is a possibility.

A more adverse scenario of a deep profit recession tied to an economic recession, like the Great Financial Crisis, is a low probability event, in our view, albeit not impossible should the war in Ukraine escalate to a serious global energy crisis. In this case, markets would be halfway through a painful bear market.

We entered the crisis with a value call that remains valid so long as there is growth potential (no recession), with inflation and rates trending higher. As the value rotation was very strong in January, we’ve tilted to quality in this value call, which helped during this phase of the market. We recently added some defensive positioning and continue to focus on the inflation theme in our selection approach as a way to navigate the crisis.

Focusing on European markets, a lot of the bad news is already priced. On a 12-month forward PE, the MSCI Europe is near 20-year lows vs the S&P500, which conveys a sense on how significant the European impact has been. In the long term, this will matter. The fundamentals (Europe’s high vaccination rate, growth recovery potential and policy support) are sound, and higher growth from China can also help. The fiscal push will also be important. More clarity on this front can be expected in the coming days from the informal meeting of the European Council in Versailles (10 and 11 March), which will discuss how to boost European defence capabilities and reduce energy dependency.

For now, Europe is a beta region, with close proximity to the escalation, and awareness is key. But if the war does not extend long enough to suffocate economic growth in Europe to the point of recession, there is space to search for buying opportunities.

Our main convictions include the following:

• The economic outlook has deteriorated and the main scenario is now less benign, with lower growth and higher inflation (particularly in Europe over the short term). Despite higher risks to the downside, we don’t anticipate a global recession.

• Chinese growth should remain sound and help support the global economy as well as being a catalyst for the European recovery once the worst of the crisis has passed.

• Volatility will remain high and, despite strong market corrections, we maintain an overall cautious approach with hedges in place against the uncertain outcome of the crisis.

• We continue to hold a short duration bias and we remain tactical in adjusting our duration stance, as this can assist with hedging during periods of turbulence.

• Any geopolitical relief could trigger a rally. With most of the economic uncertainty already priced into the market, we are prepared to tactically adjust our risk stance. Assuming no drastic deterioration on the war front, we are approaching the time to seek entry points.

• In equities, we stick to a value/quality tilt, with some addition of defensive names. It remains important to be highly selective and focused on inflation resilience in assessing opportunities.

• In credit, risks are more related to liquidity than fundamentals at this stage. Financial conditions are tightening, so it’s important to stay on the lookout for liquidity risk.

Hosted by Giulia Iannucci, CEO and Founder of KnowThyBrand, the event started with H.E. Yuriko Backes, recently named as Luxembourg’s new Finance Minister. “While the gender pay gap has decreased in Europe, Luxembourg still has a higher gender pension gap, we need to keep women in full time employment, it’s important”. She quoted Former IMF Managing Director, Christine Lagarde “Women’s economic empowerment is not just good for women but for society overall. If the number of female workers were to increase to match the number of men, GDP would expand by 5% in the United States, by 9% in Japan and by 27% in India” to add that favouring women at work also makes economic sense.

Yet half of the students in high schools are women so how can we explain that when arriving at a C-level position, there is such a gap. Minister Backes reminded us of the questions women often faced when being offered a higher position at work, a situation she also lived as a diplomat when she was offered the position of minister: Can I do this? Am I capable of doing that? Women have to support each other and continue to act as role models for the future generation. “We need to lead by example whether as Minister or entrepreneurs; we don’t want to tell young people what they have to do but support them in their choices, their career instead and we should encourage women to be investors, entrepreneurs, not to doubt themselves. We need to sponsor women”.

Nasir Zubairi followed by opening up the question around quotas. As the CEO of the LHoFT, he faced the situation of not having women applying to vacant positions and had to be proactive in finding relevant candidates. “I personally don’t believe in quotas but in equal opportunity, I want to hire the best person for the job even if I value diversity”. He recognised that Finance is man dominated and that this is a problem but generally speaking men seem to more readily take risks when women need to be asked twice. He concluded “We need to treat people equally and support men too because if a woman becomes engineers, the opposite man should be able to become nurses, for instance.”

After a testimonial from Kids Life Skills and Luxembourg Tech School about gender inclusion and the importance of parental support and education to break down gender bias, the event ended with a panel discussion with Denise Voss (Chairwoman – LuxFlag), Julie Becker (CEO – Luxembourg Stock Exchange), Georges Bock (CEO & Founder – InvesTRe), Darren Robinson (Managing Partner – Anderson Wise), Sara Kaiser (Program Director – Luxembourg Tech School) on Championing Women in Finance and Technology in Luxembourg.

While observing that women in Finance and Technology were more represented in the Sustainable Finance field, as mentioned by Voss, they all agreed that we should favour quotas to contribute and support more women taking higher positions within organisations. Robinson reminded us of a time when he was head-hunter and some of his clients asked him to only present them applications made by men. “Fortunately, things have changed and today, clients request a balanced pool of candidates” adding “Women need encouragement to apply, they should take more risks”. Participants widely shared this opinion including Voss “we sometimes need to ask women twice but once they take up the challenge, great things happen”. Georges Bock insisted on the importance of gender equality and the need to change the state of mind. “Boys and girls should embrace diversity from a very young age and find how to take advantage of it. Understanding each other is key and failure is always part of success”. Sara Kaiser added that stereotypes are deeply rooted in societies and it needs a common effort to create a favourable environment to exchange, involving more female coaches as it is important to have role models. A feeling shared by Becker when noticing that the audience was mainly composed of women and that men should feel more concerned about this topic: “gender diversity today for a sustainable future tomorrow”. She added the importance of “closing the gap of financial education. A recent study published by UBS reveals that more than half of women globally (58%) defer to their spouses to manage critical, long-term financial decisions.” Reasons range from “my spouse never encouraged me” to “my spouse knows more” about the topic. “Dare to dare, you are the CEO of your life so work hard, be bold and keep smiling” concluded Becker.