By Andrew Dyson, CEO, International Securities Lending Association (ISLA)
Looking back over the past two weeks, I am seeing some clear patterns of what may potentially shape much of our industry in the second half of this year and into 2020. As an industry association, it is vitally important that we try and identify these trends; how they may affect our work in the short term, as well as some of our longer term thinking.
Immediately in front of us in terms of importance and timeliness is of course SFTR, where much of our attention is focussed today. On Monday 27th May, the European Securities and Markets Authority (ESMA) launched a consultation on SFTR reporting draft Guidelines. These Guidelines will supplement the reporting RTS/ITS, and serve to clarify certain technical/procedural aspects of the reporting regime. In looking at ESMA’s proposed draft Guidelines, it is very encouraging from our perspective that much of the hard work we have been doing with ESMA and key industry stakeholders is reflected in this latest consultation. Having said that, we recognise there is still much to be done to successfully ‘land’ this most complex of reporting regimes. Whilst we at ISLA remain fully committed to the current implementation timelines (first reports for tier one names being submitted to trade repositories in Q2 2020), I am mindful of the considerable work and testing that will be needed to be done across the industry once the technical reporting standards are finalised. ESMA’s own comments around the release of the consultation suggest that this will now most likely be in Q4 this year.
On the 29th May, I attended the regular Bank of England Securities Lending Committee (SLC) meeting. Whilst there was considerable attention on the market’s preparations and readiness for both SFTR and CSDR, I noted some important and subtle changes to the focus of the debates around the table. Part of the role of this group is to look further out, and to think about the key drivers for change across the securities lending markets. In that regard, this group considered a number of topics, all of which will be familiar to readers of this blog and the work of ISLA more broadly.
The first I would like to highlight is ESG. The ESG debate and how securities lending co-exists alongside the principals of responsible investing and good corporate governance, is something that ISLA has been looking at for some time. All around the table acknowledged how important it will be to get this dynamic right if we want proper secondary market liquidity behind these funds, as well as allowing investors to see incremental returns to their investments through securities lending. This theme will be explored at future meetings and will be a key component of the sustainability sessions at the ISLA conference in Madrid later this month. Two further agenda items from the meeting that I would like to highlight are relative performance measurement for securities lending, and the drive towards diversity across our markets and institutions.
For some time, the routine process of trying to understand how a particular fund or groups of funds have been performing in the context of securities lending, has faced increasing scrutiny from investors and more recently, regulators. The discussion on this point was very timely, as on Tuesday 4th June, ISLA chaired the first meeting of a working group of vendors and market participants who would like to create a better level of transparency and mutual understanding around the aggregation process for gathering performance data, the key elements to the attribution process and the basis of the various output metrics used across the industry. This first stage of analysis will hopefully lead to the publication of best practice principles or guidelines, and provide a more consistent platform for peer review, allowing underlying investors to have greater confidence in both the inputs and outputs around this process. Again, this topic will feature at our up and coming Madrid conference, where the wider institutional investor community will be able to debate the topic with their peers in a closed-door environment.
Finally, I wanted to touch upon the broader issue of diversity and in particular, some of the work we are doing in partnership with ‘Women in Securities Finance’. When we look at this critically important issue, I would like to think that any of you looking at our running agenda in Madrid, will see strong and growing gender diversity. I also believe that ISLA has an important role to play in promoting and delivering on the important principles that underpin these initiatives. For those of you who will be with us in Madrid, I would like to highlight some key sessions on the Thursday. Here, we start the day with a Breakfast event that we will be running jointly with ‘Women in Securities Finance’, a group whose guiding principles include the empowerment of females within the industry to connect professionally, collaborate and share insights. Jon Terry, Global Financial Services People Leader at PwC, who will provide some perspectives at this event, will go on to deliver a broader presentation on diversity and inclusion later that morning.