SFTR | CSDR
As many of us begin to return to our desks after a summer break, this period during the year often affords us the opportunity to reset our aspirations and objectives for the remainder. Also, a period away from the day-to-day intensity of our responsibilities allows us to see more clearly the broader landscape that is shaping a lot of what we do. We at ISLA are not too dissimilar, and as I think about what we have achieved so far this year and our direction of travel for the coming weeks and months, I see some clear and consistent themes that will resonate again and again.
When I last drafted this blog in early July, ISLA was about to submit its industry led responses to the 85 questions raised in the Level III Consultation Paper (Guidelines for reporting under Articles 4 and 12 SFTR) published by the European Securities and Markets Authority (ESMA) earlier in the year. This was the culmination of many months of work undertaken by the SFTR project team, including discussions at the Open Hearing and ‘Invitation-Only‘ Workshop events organised by ESMA in Paris. In looking specifically at SFTR and the work that we have done with member firms in and around this piece of legislation, it is clear to me that the depth and breadth of the regulatory reach we are now seeing can only be effectively responded to in the form of joint initiatives and collaboration.
In many ways, ISLA provides the ideal platform for firms to work together on a number of issues where a commonality of approach and implementation is key. Only last week, we partnered with a number of other industry associations to develop a common framework for delegated reporting under both SFTR as well as EMIR. As many underlying clients and institutional investors think about compliance in respect of both SFTR and EMIR, we as an industry have to offer simple and consistent products that facilitate quick and scalable solutions to these problems. Failure to do this will create logistical and cost hurdles that could push lenders away from the market.
We should not forget that our market is generally comprised of lenders who see securities lending as an important, but optional activity. The more barriers, the more likely they are to decide that the cost and hassle of continued participation is intolerable. It is partly for these reasons that we promote global master agreements, as I believe a generic and clear framework to address the increasing regulatory reporting burden is an important development for our markets.
Taking the theme of collaboration further, we are also working with our members to develop best practice principals that will leverage the work that we are doing on SFTR and CSDR, as well as the broader corporate actions landscape. Henry Ford (Ford Motor Company) once stated, “Any customer can have a car painted any colour that he wants, as long as it is black.” Now, whilst many have debated the merits of this statement and although I am taking his comments somewhat out of context, his sentiments still raise important questions for our markets today. Standardisation will reduce costs and overheads, but from our perspective will also drive efficiencies, particularly within post trade. If we can adopt common practices and processes to address some of the extremes of the inefficiencies in our markets, we will improve settlement rates and reduce the costs associated with areas such as reconciliation and other manually intensive tasks. Whilst these reasons alone justify the need for change, we must not forget the imminent arrival of settlement failure fines and buy-in provisions of CSDR in 2020.
If we look further out and think about where much of this work is leading us, I have already discussed in this blog and in other articles the growing importance of the digitalisation of financial markets more broadly, and the implications for securities lending markets. Navigating the so-called ‘Fourth Industrial Revolution’ will be a challenge for all of us, both in our personal lives but also in our businesses and places of work. The regulatory imperative that is SFTR is demanding that we rethink many of the ways we gather and aggregate all forms of data within our organisations, and this inevitably provides a strong springboard for the development of digital platforms. You will see much more from ISLA and its partner firms on this topic as we move into the shortening days of Autumn. How the market grapples with regulatory compliance at a time of rapid and innovative technology change, will be one of the important themes that we will also explore at our 10th Annual Post Trade Conference on 1st October in London.
Finally, for those of you who might be wondering, the 11th edition of ISLA’s bi-annual Securities Lending Market Report will be published imminently. This will be the first of a series of ISLA publications, guides and papers to be launched over the coming weeks and months, complimenting and highlighting the Association’s work in a number of key areas across the industry.
Andrew Dyson, CEO