Sustainability | CSDR | Digitalisation
ISLA’s 11th Post Trade conference, that was held remotely for the very first time over 16 and 17 March, effectively marked the end of what has been an incredibly busy period for the Association. As I reflect on the two days of interactive panel discussions, presentations and keynote addresses, the agenda provided something of a mirror that reflected not only our business priorities but also the clear direction of travel being set by politicians and the regulatory community.
I have said before that I believe that the nature of what associations do and stand for is changing. In today’s world, we are seeing huge shifts in momentum across many areas of our working and personal lives. The scale and at times complexity of these changes demand that they are dealt with at an industry or market level, rather than by individual firms. This so-called mutualisation of issues within the association environment allows for the development of market-wide solutions for regulations such as SFTR and CSDR, whilst providing an ideal incubator for developing technologies such as our CDM and Clause Library initiatives.
Similarly, the wide-ranging impacts of the sustainability agenda demand a similar approach. The role of ESG factors in the context of our markets will shape the way we have to think about securities lending for the future, as investment markets realign to respond to changing investor sentiment against a backdrop of broader global awareness.
To underline this point, in his opening address at the conference, Edwin Schooling Latter, Director of Markets and Wholesale Policy at the Financial Conduct Authority (FCA) touched upon the topic of sustainability when he described how they (the FCA) are ‘working together on how financial markets can support that all-important transition to net zero’. He further went on to highlight how the work already done in around important data gathering initiatives such as SFTR, would facilitate their drive for common outcomes as part of the push towards this goal.
Not unexpectantly, the theme of sustainability was a common thread throughout the two days, with various panel discussions talking about ESG from different perspectives. The ‘Key Business, Trading & Product Drivers’ discussion talked about how institutional clients are increasingly focused on reconciling their ESG investment objectives with that of an effective lending programme. Later discussions in the day on post trade regulation and the challenges of delivering post trade efficiencies also considered how ESG will, over time, touch all areas of settlement and trade management, from compliance through to the handling of collateral.
As part of our continued focus in this area, ISLA published its joint white paper with Allen & Overy, ‘Framing securities lending for the sustainability era’ last week. In addition to providing some noticeably clear context to the developing ESG debate, the paper sets out some concrete steps that will establish a best practice-led set of recommendations to progressively align securities lending with the wider debate.
The second topic that percolated through most of the panel discussions and debates was CSDR. Not unexpectedly for an event focused on the post trade environment, CSDR is at the front and centre of many firms’ thinking as they prepare for the implementation of, in particular, the settlement discipline elements of this complex and wide-ranging piece of legislation. CSDR is shining a light on inefficient settlement and trade management processes, with much work across the industry to address and fix these short comings. However, the way in which we are addressing these issues, in my view, tells us something about the way we are currently thinking about our post trade ecosystem. Quite simply put, we continuously look to fix the problems in front of us rather than asking ourselves, ‘is there a better more efficient market framework that would address these issues at source?’. At times, it feels as though short term expediency and economics prevail over longer term strategic thinking. When I hear that firms are recruiting new reconciliations staff to deal with what look like persistently high levels of breaks across our industry, it feels like the wrong answer to an ubiquitous series of problems.
As we look further out and how something like CSDR is driving change across the industry, let’s not forget that CSDR is possibly one of the last in a long line of legislations that were born out of the 2007/8 financial crisis. In a way, they reflect a time when digitalisation was merely at the margins of most of our lives, and if conceived against the backdrop of the transformational changes seen in recent years, may look very different.
Having said that, I began to see the realisation from delegates and our wider stakeholders that the digitalisation of our markets is coming towards us quickly. Technology and the way it is being developed are presenting clear use-cases that identify real opportunities as to how to tackle endemic inefficiencies within our post trade environment. One of the panellists summed it nicely by stating that what is needed is ‘modernisation, standardisation, and digitalisation.’ In the form of our CDM and Clause Library projects, we are developing the very building blocks that could underpin that future. Our ‘Advancing the Digital Debate’ paper also published recently (and in collaboration with Linklaters), talks extensively about this vision.
So what does this mean more broadly in terms of ISLA and the future of the Association? Certainly, the remainder of this year is already looking very busy as we look to build on the strong foundations laid down in areas such as sustainability and the combined digital agendas. As I look past the end of 2021 into 2022, I see a different and perhaps more strategic and less transaction-oriented focus. Much of the work we are doing now is about setting standards, whether they be in the form of best practice or in the digital space. Increasingly, ISLA will become the custodians of these important blocks that will effectively define all elements of our markets. These standards will need to be protected, monitored and developed for the mutual benefit of market participants, notably our members.
My final word must go to Steven Maijoor, the outgoing Chair of ESMA. During his closing keynote address at the ESMA tenth anniversary event earlier this week, he highlighted the two principal areas of focus for ESMA as it enters its second decade; sustainability and digitalisation.
Andrew Dyson, CEO