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Regulatory Requirements Lending Disclosure (ALD), as well as speeding up client
onboarding and Know Your Client (KYC) challenges.
A possible solution for the industry to consider is to tap
into an existing source of external credit information via Subsequent to the financial crisis, regulators have been
an External Credit Assessment Institution “ECAI”. For keen to register more ECAIs to increase competition Any organisation appointing a
banks to use external ratings for RWA purposes the across the industry. Crucially, the regulatory focus for custodian to hold their pledge
ratings provider will need to be with the appropriate ECAI certification is on the credibility of the ratings,
regulatory regime. At present US banks are somewhat which is determined partly by their usage, and by the assets should understand the
restricted in their ability to use external credit providers adhering to certain rules on transparency underlying credit and
information by The Dodd Frank Act. There is ongoing and disclosure.
debate about this act and it may be changed in the real-world risk
future. However, the non-US divisions of the US banks The creation of Consensus ratings by aggregating all Mark Faulkner
are often large participants in the securities lending available information from banks that have actual Co-Founder, Credit Benchmark
markets and may use external credit information. exposure to obligors, and where there is no underlying
conflict of interest, is clearly one potential solution to Summary Mark has an established track record in bringing
Credit Benchmark is exploring the option of becoming the challenge that Basel IV has posed to the securities transparency to rapidly developing areas
a regulated ECAI in order to provide external credit financing industry. This objective of this paper is to make sure that this of financial services. Alongside his business
data that can be used under Basel IV regulations. Credit important issue is on the radar of all market participants partner Donal Smith, he co-founded Credit
Benchmark has already established relationships with a With regards to the funds sector, Credit Benchmark and industry associations in sufficient time for them to Benchmark in 2013, introducing the world’s
number of key global regulators, and the data is currently already publishes Consensus ratings on close to 20,000 carefully consider the ramifications of the forthcoming most comprehensive source of Consensus
being used by the Bank of England to help maintain the Mutual-, Pension- and Sovereign Wealth Funds, the vast Basel IV rules. Furthermore, to provide the industry with credit risk data. In 1994, Mark spotted an
supply of credit due to the ongoing Covid-19 crisis via majority of which are high-quality investment grade a forum to consider rules in detail and to discuss and opportunity to provide customers in the
the CCFF scheme. Consensus ratings. Whatever solution is decided upon, consider ways in which to address them for the benefit securities financing industry with independent
it is important that the industry moves quickly towards of the broader market. This paper was written following specialist advice and services. The company he
Credit Benchmark data is already active in the securities an agreement to prevent disruption to the capital market a preliminary meeting on this subject that was chaired by founded, Data Explorers, became the leading
financing industry, supporting firms on Agency and falls in the returns of pensioners and savers. Andy Dyson, CEO of the International Securities Lending provider of securities lending data across all
Association (ISLA) and attended by banking member global market sectors, and was acquired by
representatives. It is a call to action for fellow ISLA IHS Markit in 2012. Mark graduated from
Fig 16: Extract from Credit Benchmark Bank and Non-Bank Financial Institutions Risk Monitor June 2020 members to get involved in this important discussion. the London School of Economics and held
management roles at LM Moneybrokers,
Goldman Sachs and Lehman Brothers.
Credit Consensus Changes Credit Consensus Distribution Next Steps
In 2004 Mark wrote “An Introduction to
Intermediaries Total Deteriorations Improvements IG To HY aaa aa a bbb bb b c The next ISLA meeting on this topic will be convened Securities Lending”. It was commissioned
soon and interested parties are invited to contact the by the International Securities Lending
Central Clearing 40 2.5% 2.5% 0 6 15 19 author, Mark Faulkner, or the ISLA CEO Andy Dyson, Association and Endorsed by Association
Counterparts
to discuss their involvement. As agreed at the initial of Corporate Treasurers; British Bankers’
CCP Members 1904 11.3% 5.1% 4 6 119 953 520 275 21 10 meeting, ISLA and Credit Benchmark will be reaching Association; The London Stock Exchange’s
out to fund representatives and associations in key National Association of Pension Funds and
Broker Dealers 261 7.3% 2.3% 0 7 108 83 62 1 jurisdictions to brief them on the forthcoming Basel The Securities Lending and Repo Committee.
IV rules and the potential impact upon the Capital The booklet was subsequently translated into
Custodians and markets and to invite them to participate in the many languages and remains accessible
Sub-Custodians 151 13.2% 7.9% 0 16 61 26 31 13 4
ongoing discussions.

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