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European Edition
9th June 2021
UK launches scaled-back financial sector climate risk stress tests
The Bank of England has scaled back the scope of its inaugural stress test of the climate risks facing banks and insurers after participants expressed concern over the magnitude of the challenge. The Bank said the test - to be carried out every other year - is only "exploratory" for now and, unlike its regular annual stress tests, will not be used to prescribe how much cash banks need to set aside on their balance sheets. The test will look at gauging the size of risks to bank credit books and to the assets and liabilities of insurers. Andrew Bailey, governor of the Bank of England, said: “Today’s exercise will help us size the risks from climate change for both the largest banks and insurers as well as the financial system as a whole . . . The end result will be more robust management of climate-related financial risks across the sector.”
UK wants G7 ‘carve out’ for City financial services
The UK is pushing to have the City of London exempt from the new global minimum corporation tax system approved by G7 finance ministers over the weekend. The FT explains that the rationale for excluding the financial sector was set out in October last year and is based on the premise that financial services were generally required to have appropriately capitalised entities in each jurisdiction and therefore paid the right level of local tax. Chancellor Rishi Sunak reportedly raised the issue at the talks in London last week and plans to make his case again at the G20 summit in Italy next month. A British official said EU countries are taking the same position.
IRS leak reveals details of US super-rich
Calls for a wealth tax on the super-rich have grown after a trove of tax data from the US Internal Revenue Service was leaked to the investigative journalism organisation ProPublica revealing the tax returns of some of the world's richest people, including Jeff Bezos, Elon Musk, Warren Buffett and George Soros. ProPublica calculated the wealth of the 25 richest Americans collectively jumped by $401bn (£283bn) from 2014 to 2018. They paid, according to ProPublica, $13.6bn (£9.6bn) in federal income taxes over those years - equal to just 3.4% of the increase in their overall fortunes. Using tax strategies which are perfectly legal, Jeff Bezos paid no income tax at all in 2007 and 2011, George Soros went three straight years without paying federal income tax, while Elon Musk paid nothing in 2018. The leak, which is being investigated by authorities, has prompted the likes of Senators Elizabeth Warren and Bernie Sanders to demand Joe Biden introduce a wealth tax in America “to make the ultra-rich finally pay their fair share.”
Monthly M&A activity rose in March
Deals between UK companies fell in the first quarter of 2021 after a rash of dealmaking towards the end of 2020, ONS figures show. Domestic UK M&A was worth £3.8bn, a decrease of £5.3bn from the previous quarter last year. Outward M&A also decreased, by £1.9bn in the fourth quarter last year to £2.5bn. However, monthly M&A activity rose in March 2021. Steve Ivermee, UKI Strategy and Transactions Leader at EY, said this reflected a “brightening outlook for the UK economy.” EY research on corporate confidence in the UK reveals more than half of executives of large organisations in the UK are planning deals in 2021, compared with 45% in the US.
US banks outpace Europeans in return to the office
European banks including Barclays, Deutsche Bank and HSBC are taking a more relaxed approach than American peers such as JPMorgan and Goldman Sachs when it comes to a return to the office, reports Reuters, which surmises that Wall Street bankers who are back behind their desks might win more facetime with clients, and an even greater share of deals. US bank staff “may now find themselves at an advantage as their offices fill up: colleagues can quickly share ideas or deal gossip; more frequent face-to-face meetings with clients help to build trust.”
Part-time workers risk being left behind
Part-time workers in the UK will suffer more job losses proportionately when furlough ends, according to a report. An analysis by Timewise, a flexible working social enterprise, and the Institute for Employment Studies found that although vacancies were rising, only 8% of vacancies were offering part-time work. "For many of these people, part-time work is a necessity to being able to work at all. Whether fitting work with raising children, elder care or a sickness or disability, often, full-time work is not an option," the report said, adding "Since early on in the pandemic, it has been clear that people working in part-time roles have borne the brunt of UK job losses, furlough and further reduction in working hours. Yet even post the so-called global flexible working experiment, they still have no viable market in which to find a new job."
Fintechs accuse big banks of trying to freeze them out of the market
Leaders of nearly twenty fintech companies have written to the Competition and Markets Authority (CMA) to complain that its consultation on the future of open banking reforms will put decision-making in the hands of the large banks. The fintech bosses raised concerns over the watchdog's plans to use proposals submitted by UK Finance as the basis for its consultation. They said: "Open banking's future can only be guaranteed if its governance is robustly separated from the banking participants the CMA order targeted. Positive consumer outcomes are at risk if competition is stifled: it has not been the banks that have introduced innovative offerings to the market."
Government to modernise trade union regulator
The regulator for trade unions and employers’ associations will be modernised to uphold high standards across the sector and provide reassurance to union members, the government has confirmed. The reforms, which have previously been approved by Parliament, will bring the functions of the Certification Officer into line with other regulators, like the Pensions Regulator, Financial Reporting Council and Electoral Commission. Business Minister Paul Scully said: “Trade unions can play a key role in helping workers understand their rights, which is why it is so important that the regulator is able to ensure they are complying with the law. Ensuring unions fulfil their statutory duties is to everyone’s benefit, including union members.”

Paris and Berlin lead fight to dilute Brussels’ stricter bank capital rules
An alliance of EU states led by France and Germany is fighting to water down Basel III rules that will introduce a new capital minimum arguing that the international standards threaten to penalise EU banks.
G7 countries told to ban state-controlled forced labour
Dame Sara Thornton, the independent slavery commissioner, has urged the G7 to demand an end to forced labour in goods and services that reach their countries. Dame Sara says that 25m people live in slavery due to forced labour, human trafficking and commercial sexual exploitation. In a piece for the Times, Dame Sara and Alex Thier, the chief executive of the Global Fund to End Modern Slavery, say that the G7 should use the debate around the forced labour of Uighurs in China’s Xinjiang province as a catalyst for change. The pair also want agreement on eliminating forced labour in G7 supply chains by 2025 and worldwide eradication by 2030.
Aviva told to return £5bn to shareholders
Cevian Capital is calling for Aviva to return £5bn in excess capital to shareholders next year. The Anglo-Swedish investment firm, which has built a 5% stake in the insurer, argues that Aviva should use the proceeds of a series of business sales that raised £7.5bn to fund the giveaway. Cevian’s co-founder Christer Gardell said the insurer had been "poorly managed for many years” but “has the potential to become a focused and well-capitalised market leader.” Along with the dividend payment, Cevian wants Aviva boss Amanda Blanc to lift her cost-saving target from £300m to £500m yearly and more than double the dividend to 45p within three years.
Fund managers ‘must say if they have skin in the game’
Interactive Investor wants individual fund managers to be obliged to disclose how much of their own money they invest in the funds they run and market to retail investors. The investment platform has launched a campaign for more transparency after nine out of ten of its own users said that they would like to see evidence that fund managers had “skin in the game.” Richard Wilson, CEO of Interactive, has written to the Financial Conduct Authority, calling for more disclosure. “Retail investors deserve better disclosure and treatment — it is just good governance,” he said.
Toyota reaches settlement over engineer’s suicide
Toyota has reached a settlement with the family of an employee who committed suicide in 2017 after experiencing workplace bullying. The out-of-court settlement came after the man's suicide was recognized as having been caused by workplace harassment from a superior. The auto maker admitted to its violation of the duty to care for the safety of its employee and paid damages. The amount has not been disclosed. In a statement, Toyota expressed sorrow over the man's death and said the company "takes seriously the fact that the precious life of one of our important employees has been lost," adding "We are developing and carrying out preventative measures to ensure that such a painful episode is never again repeated." The world's No.1 auto maker said the measures would include an expansion of the company's counselling system and strict disciplinary measures for workplace harassment. Toyota said: “We will continue our efforts to build an open workplace culture in which employees can work with peace of mind.”
Italian tax police seize funds from local DHL unit
Tax police in Milan have seized assets worth more than €20m ($24m) from the local unit of logistics company Deutsche Post DHL as part of a tax fraud investigation. The seizure order said two top executives of the company's Italian business were being investigated for tax fraud. Under Italian law, companies can be held responsible for crimes committed by their executives.
Europe's banks take on US payments 'oligopoly'
The FT reports on revived efforts to create a European payments system to rival Visa and Mastercard as EU banks increasingly fear being squeezed by US or Chinese operators, and missing out on the margin.
Renault charged with cheating emissions tests
Renault has been charged by French investigators with cheating on emissions and will have to pay a €20m (£17m) bail and provide a bank guarantee of an extra €60m to cover potential damages. The carmaker has disputed any wrongdoing and said it "has always complied with French and EU regulations."
Going to the pub while off sick is no sackable offence
An employment judge has ruled that going to the pub while off work sick is not necessarily a sackable offence. Judge Andrea Pitt said that unless an employer has specifically forbidden employees from socialising while ill they are free to do as they like. She was ruling at a tribunal over the case of a driver who was fired after being caught going to a social club having called in sick.

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