SFTR | CSDR | ICSF | ESG | Corporate Social Responsibility | Captial Markets Union | CDM
The turn of 2020 saw not only the start of a new year, but the arrival of the next decade. Simple changes to the calendar inevitably raise expectations that we are at the start of new beginnings, or that this is a time for change. And whilst 2020 is already delivering that mix of familiar topics, we are seeing some bold ideas and initiatives that will shape much of the coming twelve months, if not the next ten years.
If I perhaps begin with CSDR, I am already seeing further momentum building in recent weeks around a number of advocacy collaborations as well as working group initiatives to further improve and influence the implementation outlook. On the one side, the establishment of industry best practice on topics such as auto-partialling to improve settlement efficiency. On the other, a joint trade associations’ letter to regulators, outlining a number of practical proposals around the introduction of cash penalties, the deferral of mandatory buy-in regimes and the introduction of additional monitoring processes, amongst other things. To my mind, this measured and pragmatic approach will hopefully yield better outcomes for our industry as well as broader financial services. Look out for further communications on this.
On January 6th, The European Securities and Markets Authority (ESMA) published its final report, Guidelines on reporting under the Securities Financing Transactions Regulation (SFTR), amended SFTR validation rules, and a statement on Legal Entity Identifiers (LEIs). ESMA’s publications have essentially provided the final pieces of the implementation framework that the industry has been working towards over the past eighteenth months. Since the release, our SFTR project team has been carrying out its own detailed review of the final guidelines and rules, including a meeting of our industry-led Steer Co. to assess the implications of the latest outputs from ESMA and agree market level next steps. ISLA remains fully committed to working with all relevant stakeholders ahead of the submission of the first SFTR reports in April. Set against this backdrop, we will also be holding a workshop event in Luxembourg on February 11th for both our members as well as those of ALFI, to discuss the implementation challenges faced by all participants from across the investment fund industry and securities lending value chain.
Full details can be found here.
SFTR in itself was born out of the financial crisis, and its imminent arrival will see it enter a very different world to the one that it was primarily designed for. Today banks are better capitalised, and prudential regulation restricts excessive risk taking to the point that many feel that the absence of liquidity could be the genesis of the next crisis. Recent problems in the US repo markets highlight how quickly things can change.
To an extent the world has also moved on, and is increasingly driven by other priorities such as climate change and the green agenda. Today, images of forest infernos and melting ice caps in mainstream media are familiar sights. Where previously one could have dismissed them as either fake news or natural climate variations, this position is no longer sustainable or appropriate. None of us are immune to these issues, and it is important that we play an active role in both shaping that debate and looking for creative solutions within our markets and beyond. With this in mind, ISLA recently announced the formation of the ISLA Council for Sustainable Finance (ICSF), which will be a key building block in establishing principles and best practice frameworks for our industry as we enter this ever changing and rapidly developing debate. Whilst responsible investing has been with us for at least twenty years, the pace of change is increasing and the broader ESG debate is beginning to drive much of what we all do in both our personal as well as business lives in the foreseeable future.
Somewhat closer to home, the reverberations of the ESG agenda came through this week in the annual ISLA offsite on 14 January. In addition to approving an ambitious and exciting programme of member and wider industry focussed initiatives, the ISLA Board ratified a strong commitment to the development of a robust Corporate Social Responsibility (CSR) framework within the Association.
As we look past the immediate implementation challenges of SFTR and CSDR, priorities identified within the 2020 business plan also included digital documentation and negotiation platforms, as well as further analysis to make the jump from regulatory best practice, to a fledgling Common Domain Model.
Innovation and adaptability has always been a feature of our markets, and the first year of the new decade offers both challenges and opportunities which we have to embrace. As markets evolve and develop in the context of sustainable finance and the Capital Markets Union (CMU), securities lending make look different but will be fundamentally all about one thing, the provision of liquidity.
Andrew Dyson, CEO