As I draft my final blog for 2021, it seems somewhat like groundhog day; we are in many ways in the same position that we were this time last year. Again, infections around the new and virulent COVID Omicron variant are beginning to intrude on our daily lives. Obviously, we must recognise that due primarily to highly effective vaccination programmes, we go into 2022 better prepared for whatever is next to come. However, what we all regard as normality is now a fragile concept that can easily be tipped out of balance as the pandemic continues to ebb and flow.
From an ISLA perspective, we find ourselves once again working from home, with any plans to visit members, regulators, and wider industry stakeholders early next year, already looking problematic. Set against this fast-moving narrative, we are however much better equipped to focus our engagement and communication efforts through virtual conduits.
Looking back at 2021, I wanted to highlight several key events and milestones that have in their own right, set the industry on a different course. After what seemed a benign end to 2020, and the expectation that 2021 would see a return to some sort of normality after the market excesses in the early part of the year, the financial community was jolted out of any complacency with the events surrounding GameStop. Quite simply, retail investors trading in the form of a swarm, were able to influence the future direction of a previously unheard-of retail-based underperforming stock. We saw concerns raised across the regulatory communities in Europe and North America, leading directly to the SEC’s consultation on transparency in SFT markets that was published in November. For the first time, we saw the ability of retail investors to potentially shape market outcomes in this way.
The second standout event of the year in my mind, was the decision taken in the latter part of the year by the European Commission (EC) to defer the mandatory buy-in elements of the much discussed and debated CSDR legislation. After the considerable advocacy efforts undertaken jointly by a number of industry associations to persuade the EC that this part of the regulation would counter much of what the legislation is designed to do, this was something of a victory for pragmatism and the markets themselves.
The third milestone or development that I want to reflect upon here, is that of sustainability. Whilst ESG investing is now very much part of every element of the investment process, I feel that for securities lending and the Association, 2021 has been the year that has moved us from merely discussing the theory behind the intersection of ESG investing and securities lending, to the implementation of real solutions that provide tangible benefits to our members. Much of that work is now flowing through the organisation, as our wider technical working groups begin to deliver outputs in the form of market best practice.
In quarter three of the year, we were delighted to announce the formation of the Global Alliance of Securities Lending Associations (GASLA). As we have seen across other financial markets, collaborating with fellow associations who cover the same products and therefore see similar opportunities and challenges, brings one global and united voice on key strategic issues that transcend all markets and members that we collectively represent. The power of that collaboration was seen by the publication of our first joint paper on voting standards in November.
Before I move on to 2022, I wanted to touch upon the work that we have been doing across the digital space. In 2021, ISLA delivered a minimum viable digital framework for securities lending in the form of the Common Domain Model (CDM), together with the blueprint for the digitalisation of our legal master agreements within the Clause Library & Taxonomy initiative. As firms strive to address the settlement inefficiencies that will be heavily penalised by CSDR, adoption of these digital standards will enhance connectivity and reduce friction within the system.
Finally, I wanted to take a moment to highlight some of our plans for 2022, and how we are developing our thinking as the markets continue to evolve.
We expect to see both CSDR and SFTR continue to figure highly in our technical working groups. The implementation of settlement failure fines under CSDR is likely to be an important event in February, and we have already been working extensively to identify how we can smooth that process across the market.
The sustainable agenda is set to accelerate further still, and after our initial work on governance and voting in collaboration with GASLA, I expect to see further detailed guidance on collateral and potentially counterparty selection later in the year.
Underpinning much of this, will be our digital work as we look to move current best practice into the CDM to allow members and other industry stakeholders to build systems and products that reflect our markets’ best practice standards.
As we respond to the changing needs of our markets and the members we represent, as well as develop several of our key business lines to respond to these challenges, you are likely to see some new as well as familiar faces join the team early next year!
In closing, I would like to thank the ISLA team for their tireless efforts this year in delivering an extremely ambitious business plan in 2021. The support of our member firms, which increased to over 170 during the course of the year, is greatly appreciated, and without whom the Association would not have developed into the place it is today.
I would like to wish all our readers a relaxing and safe festive period.
Andrew Dyson, CEO