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ISLA MANIFESTO 2024
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Advancing digitisation & the uptake of industry standards to support the
transition Recommendations

Capital markets in Europe are now more accessible than The regulatory environment to facilitate movement of
ever, and a lot of this can be attributed to technology tokenised assets as well as the infrastructure, including For the purposes of encouraging cross-border investment and innovation in the EU, whilst also acknowledging the
advancements that have considerably reduced the cost custody solutions and trading platforms is still evolving, fragmentation across national markets, ISLA would recommend the following:
of trading, especially for the individual retail investors. and ISLA is very supportive of these developments. A
Support for development of new infrastructures such as clear and structured framework will be necessary for I
Distributed Ledger Technology (DLT) can further: widespread adoption and to mitigate any potential risks. Complete a full cost-benefit analysis on the current CSDR penalty regime implemented in February
Careful consideration must be given to the specific 2022 in order to fully comprehend and analyse its effectiveness in improving settlement efficiency
characteristics of the asset and the intended use cases. across EU capital markets. Adjust (increase) penalty rates accordingly for instrument types that have
(i) reduce settlement times, with the not demonstrated a sustainable improvement over time.
potential for ‘real time’ settlement For technology to thrive, it is imperative that financial
finality, eliminating the delays markets adopt not just the technology, but also a
caused by traditional intermediaries unified and therefore frictionless standard. To further II
this outcome, ISLA has been working alongside the Consider securities borrowing transactions as the primary tool to aid and improve settlement
(ii) reduce operational costs by International Swaps & Derivatives Association (ISDA) efficiency and refrain from imposing any additional regulatory burdens, such as progressive penalties,
streamlining the often manual and the International Capital Markets Association from these types of transactions to ensure that they remain viable to be used for operational
elements of the settlement process (ICMA) to develop the FINOS Common Domain Model efficiency and increasing liquidity.
(iii) enhance transparency and (CDM). The CDM creates a single data standard that
auditability by creating a secure can be used to represent securities lending, repo and III
record of all activity reducing risk derivative transactions through common data points, Complete full cost-benefit analysis, working with the financial services industry, to evaluate the pros
and potential fraud transaction lifecycle events and product definitions. and cons of accelerating the settlement cycle to T+1 in Europe, carefully assessing its impact on
(iv) improve governance by providing This common standard approach will support legal, KYC liquidity vs competitiveness vis-à-vis third countries.
a clear picture of ownership and and static information that underpin market operations
transaction history with access to and therefore improve post-trade activities.
consistent and good quality data to The improved data clarity realised by this approach IV
help mitigate counterparty risk not only improves market efficiency but also has been Provide political support for the uptake of the FINOS Common Domain Model (CDM) for SFTs,

proven to significantly reduce costs, for both the market bonds and derivatives markets to reduce the regulatory burden and cost for regulators in the EU,
and regulators. In its April 2022 Machine Readable whilst promoting a level of standardisation across markets for lifecycle events, thus improving
To encourage greater use of digital infrastructure, Executable Reporting (MRER) feasibility study, the interoperability and communication across the EU capital markets.
ISLA believes that the use of digital assets, such as European Commission highlighted the benefits to both
tokenised traditional financial assets, could make market participants and the supervisory community of V
the EU more competitive and even more accessible. a CDM. Combining this concept with the reality that Continue to focus on developing a sturdy legislative framework to embolden participation in the
Digital assets can make a significant positive impact on regulatory compliance represents one of the largest market for digital assets including, MiCA, MiFID II and the DLT Pilot Regime for Market Infrastructures
liquidity, as they allow for fractionalisation, meaning operating costs, there are obvious benefits to adoption based on DLT to create harmonisation and remove uncertainty for businesses by outlining clear and
that market participants can gain ownership of assets of these technologies and standards, further improving concise definitions and use cases.
in smaller digital units, which facilitates participation the attractiveness of operating in the EU.
from a much wider range of investors, including those
with less capital. New asset classes can also create
additional avenues for funding and collateral purposes
by removing geographical and operational barriers
associated with traditional collateral management,
leading to a more frictionless market.