European Commission | ESG | SFTR | CSDR | LEIs | Finadium | IMN
As we in the UK have once again been completely fixated on UK politics and Brexit, the next European Commission (EC) has been forming under the direction of the new EC President, Ursula von der Leyen. The agenda for the coming EC is being built around a number of key themes, including an economy that works for the people, building a Europe that is fit for the digital age, and pursuing the adoption of a wide-ranging green deal for Europe. In addition, there is also growing momentum around a broader-based ‘values’ agenda that will cut across much of the EC’s work. We have already seen the appointment of an EC with particular responsibilities for protecting the European way of life, and therefore we expect to see a more values-based approach influencing many of the other core competencies as their work develops. From our perspective, this is likely to raise some interesting questions as we try and merge a rules-based approach around regulation, with the more subtle elements often associated with broader themes such as Environmental, Social and Governance (ESG) concerns. It will be important for ISLA and the broader market to follow closely this developing narrative, as it will shape future legislation and focus over the coming five years.
Whilst we are very mindful of this, we should not forget that work continues within the Association around the delivery of both SFTR and CSDR. On 10 September, we published a paper considering Legal Entity Identifiers (LEIs) in the context of SFTR. Here, we highlighted the crucial importance of LEIs both at the counterparty and issuer level as part of a successful implementation of Europe’s mandatory reporting obligations. Data provided as part of the report suggested that circa 70% of assets do not yet have an LEI. If the dial is not shifted here or we get a different regulatory treatment over the coming months, we could see certain collateral assets disappear from eligibility schedules. This in turn could put greater pressure on those remaining collateral assets that support our industry. Pressure of this kind tends to then manifest itself through increased pricing.
We of course continue to work hard with our members and broader stakeholders to clarify outstanding elements of the RTS, but my sense is that there is still a lot to be done across the industry over the next few months. We should also recognise that we do have an implementation dependency around the publication of further detailed guidance from ESMA later this year. Whilst the overall shape of what we have to deliver from April 2020 is unlikely to change now, I do expect to see a flurry of business and development activity around the end of this year as we digest any final changes to the level three outputs.
We would expect many of these themes to be explored in the coming weeks, as the autumn conference season begins in earnest. On 24 September, the first of these events will be the Finadium Investors In Securities Lending Conference – Europe. Adrian Dale will be representing the Association as a panellist on a session looking a the important themes of regulation and market liquidity over 25 and 26 September, the ISLA team will then be in attendance at the IMN Annual European Beneficial Owners’ Securities Finance & Collateral Management Conference here in London. On the Wednesday, Adrian Dale will be moderating a panel on preparing for SFTR implementation as well as looking at the benefits of delegated reporting, notably to the buy-side. Later that day, myself and Sejal Amin will be leading this year’s closed door beneficial owner-only session. Towards the end of the conference, ISLA will be providing a short presentation on the role of Common Domain Models (CDM) in the standardisation of securities finance markets. I have touched upon the development of a CDM framework for our markets for some time now, and as part of that presentation, I will be highlighting a paper that we hope to publish jointly with Linklaters early next week. This aspirational agenda for change highlights how our markets have to embrace both the momentum created by SFTR here in Europe, with increasingly disruptive technologies and thinking. The debates opened by this paper will also form part of ISLA’s Annual Post Trade Conference in London on 1 October. We have always felt that it is important to keep this event free for all member firms, as the issues discussed in this forum should not be constrained by a firm or an individual’s ability to cover the cost of an admission ticket. The response of our members and sponsors supports the view that this is one of the industry’s most important post trade events in Europe.
Finally and on something of a different note, I would just like to highlight that on 25 September, the voting process to elect the next ISLA Board will begin. For those of you that represent your firms as Member Representatives, I would urge you to engage fully at this key stage, as this an opportunity for you to shape the future direction of our work and focus.
Andrew Dyson, CEO