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ISLA MANIFESTO 2024
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4. Better Data for Greater Stability

ISLA has long supported the push by global and EU Over the years, ISLA has maintained a log of
policy makers for more transparency in the securities outstanding issues and challenges related to SFTR’s
financing market and proactively led the charge for the reporting obligations, that have been shared with the
industry to adopt and create best practices with regards EU regulator. We welcome the opportunity to build
to the Securities Financing Transaction Regulation out the framework to address these challenges, to
(SFTR) since long before the go-live in 2020. allow policy makers to have accurate data surrounding
ISLA fully supports Europe’s goals to ensure that SFTs securities lending and borrowing activity.
are conducted in a safe and sound manner to help Although minimum haircuts for SFTs as part of the Basel
protect from risks that exist, particularly outside of the III framework have generally not been implemented
traditional banking system. We therefore welcome the in several jurisdictions to date, we anticipate that
news of an upcoming consultation on SFTR announced they will be considered in the near future. Under the
as part of the European Commission’s report on a international Basel framework, non-centrally cleared
macroprudential framework for Non-Banking Financial SFTs with non-banks as well as collateral upgrade
Intermediaries (NBFI) as well as the full review of the transactions will be captured under this framework.
SFTR reporting regime by the next Commission. ISLA Although there is general acknowledgement that some Recommendations
supports the Commission’s desire to make the regime SFTs may be used to take on leverage which may pose
fit for purpose, to help regulators to identify risk risks to financial stability, not all SFTs are entered While SFTR has increased transparency in SFT activity, assessing its full impact on ‘shadow banking’
and to provide a fuller picture to trigger the relevant into for this purpose. The FSB stated in a report titled and the associated risks of contributing to a build-up of leverage requires further analysis. The EU
supervisory interventions where necessary. ‘Transforming Shadow Banking into Resilient Market- must ensure that the regulatory burden imposed by SFTR is balanced against the benefits of improved
based Finance’ in 2015 (updated in 2020), that the financial stability and risk mitigation. With regards to the macroprudential framework for the NBFI
The implementation of SFTR has yielded a number of
valuable lessons for regulators and market participants framework looks to “limit the build-up of excessive sector, ISLA understands the importance of appropriate counterparty credit risk management by banks
including: leverage outside the banking system, reduce the given the high degree of interconnectedness with NBFIs.
procyclicality of such leverage, guard against the risk of
regulatory arbitrage, and maintain a level-playing field”. I
However, there is no distinction made in the Basel The Commission should proceed with updating SFTR and address outstanding challenges
(i) Importance of standardised data framework between: that will allow policy makers to have more accurate data surrounding securities lending

collection. As advised above, the (i) specific transactions that are for the purpose of and borrowing activity.
endorsement of policy makers for
a CDM would help significantly to financing and thereby increase leverage.
ensure consistency of data provided for II
analysis. AND The review regarding minimum haircuts should be based on a thorough cost-benefit
(ii) Data quality and reporting granularity. (ii) transactions such as securities lending and analysis using the enhanced SFTR data, post the initial review, in order to properly assess
Data lacks the necessary detail for borrowing, that are mostly used to source a particular the impact of certain SFTs and their overall contribution to a build-up of leverage in the
effective risk assessment by regulators. security. financial system before imposing further prudential requirements such as minimum haircut
Going forward, efforts to improve data
quality and standardised reporting Furthermore, a 2016 ESMA report states that floors on non-centrally cleared SFTs.
granularity can further enhance the “numerical haircut floors for non-centrally cleared
usefulness of the data collected. transactions, such as those set out by the FSB, can
only be introduced and calibrated following a thorough

analysis using granular SFT data (which will become
available after the full implementation of the SFTR, and
following careful assessment of the scope)”.