Reflections of the CEO

COVID-19 | UK Money Markets Code | CSDR | GFF Summit | ESG

As we arrive at the end of January, it is worth thinking for a moment about how quickly the world around us can change. This time four weeks ago, many of us had never heard of Wuhan, a city roughly the size of London, or the Coronavirus, a new respiratory illness previously not seen in humans that could now be set to cause a pandemic. It is perhaps telling of how the world communicates today, that the imminent withdrawal of the UK from the EU is almost a forgotten event! Although these events are quite different in many ways, with one appearing almost out of nowhere and the other a multi-year process, they do both share a common thread; they represent change that we have no option but to deal with. From the perspective of our markets, and whilst it is not necessarily appropriate to draw direct comparisons, our industry is familiar with change and all that it brings.

On 27 January, Tina Baker and I attended an exploratory meeting at the Bank of England (BoE) on diversity and inclusion. The meeting, organised by the UK Money Markets Code Sub-Committee, was to open up a dialogue on how the current UK Money Market Code may be enhanced to create more diverse and inclusive workplaces. The BoE’s own website discusses ‘trying to create a workforce that reflects the diversity of the society we serve’, as well as developing ‘an inclusive workplace culture that allows people to be themselves at work and achieve their full potential’. These are sentiments that ISLA fully supports, and whilst we intend to play an active role in this process and other industry-wide initiatives, we will be looking to revisit our own policies and procedures in the coming weeks and months.

As part of ISLA’s continued focus to positively influence the outcomes of significant regulatory and legislative initiatives, last week saw another cross-industry associations’ collaboration. On 24 January, ISLA along with fourteen of its peers submitted a joint letter to both the European Commission and ESMA in relation the implementation of the CSDR settlement efficiency regime. This communication was designed to encourage a reassessment of key aspects of the regulation through a detailed consultation process as well as market engagement. We eagerly await feedback from the authorities, as this could have significant implications for all aspects of final implementation, including the mandatory nature of buy-ins.

As the industry gathered at its first major event of the year, the annual Deutsche Borse Global Funding and Financing (GFF) Summit, it was great to see so many familiar faces representing all facets of the collateralised markets. It was immediately clear to me from the sessions that I attended, that the role of the buy-side is changing rapidly within our markets. The arrival of UMR for uncleared derivatives transactions is forcing this community to re-evaluate how it thinks about collateral more broadly, with securities lending increasingly a liquidity primer across different businesses.

As a collateralised market, we have long understood the importance of appreciating the role of collateral, and the risks associated with having to liquidate it following a counterpart default. The demise of Lehman Brothers taught us a great deal about both market liquidity and execution risk. There was much discussion during the event about broadening and standardising collateral schedules. Whilst we would of course fully support any initiative to make markets more efficient and inherently more liquid, it is also important that the lessons learnt from the post-crisis era are not forgotten, as the market strives to bring ever more diverse securities into collateral pools.

Towards the end of the two days, I had the pleasure of chairing a session on ESG. This is such a broad and all-encompassing topic, that it probably warrants an entire event of its own. At the very start of this piece, I mentioned change in the context of both Brexit and the Coronavirus. In quite different ways, ESG represents significant change. Driven recently by climate concerns, ESG is now moving into the mainstream consciousness of investors, notably the retail sector. Institutional investors have for some time recognised the role that ESG can play as part of the investment process. What appears to be changing is that through the power of social media and other similar mediums, the so-called ‘man on the street’ or retail investor is acting as a powerful agent for change.

Finally, as one conference ends another is just over the horizon. I was delighted to see the publication of the outline agenda for our 29th Annual Securities Finance and Collateral Management Conference In Vienna this June. I am reminded early bird rates expire soon and that the city will be hosting many events in and around this time, so don’t delay in securing your place, accommodation or travel!

Andrew Dyson, CEO

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