Lisbon by night
26 June 2018
ISLA’s 27th Annual Securities Finance and Collateral Management Conference saw a record number of delegates, as Brexit dominated the discussion
Image: Shutterstock
The International Securities Lending Association’s (ISLA) 27th Annual Securities Finance and Collateral Management Conference saw more than 600 delegates arrive in Lisbon for three days of informative discussion and lively debate.
In his welcome remarks, ISLA CEO Andrew Dyson, said that the conference, ISLA’s largest to date, aimed to both inform and challenge delegates.
Dyson said that the association wanted to show delegates what it had been doing over the past year, but also wanted to promote thoughtful discussion.
He explained that events like ISLA’s annual conference work best when you hear more from the delegates than the speakers.
In the opening keynote speech, Gabriela Figueiredo Dias, chairperson of Portugal’s Securities Market Commission, said that financial markets must “reassure” people of their reliability and “rebuild trust” in the coming years.
Figueiredo Dias said that this was one of the “key trends” the financial services industry would be seeing.
She explained: “In general, we as the financial sector are perceived to have failed the global economy at the beginning of
the century.”
“We must now show that lessons have been learned and that we can build an efficient financial system. This is our most valuable contribution to unlocking the potential growth of our economies. We need to reassure people of the reliability of the financial markets,” noting that this was particularly important for Europe.
In Europe, Figueiredo Dias said there were already some positives, with the continent moving towards a market focused economy.
“In the securities lending market, despite some quarterly episodes, the end of 2017 was much less tumultuous than the year before. This was welcome considering the changing regulatory environment that we are facing. In Europe, the worst of the crisis is now behind us.”
However, Figueiredo Dias noted that despite these positive trends, the level of uncertainty remains particularly high, with growth momentum stabilising, while private and public debt continue to cast a shadow.
The dominating theme of this year’s conference was, as usual, Brexit, with speakers and delegates alike discussing the political impact of the UK’s vote to leave the EU, as well as the ramifications for regulation and the industry.
In one session, panellists discussed how a lot of the capital that could be used to innovate, is being used to “maintain the status quo”, as a result of Brexit.
Panellists included James Knightley of ING, Ed Bracken of Morgan Stanley, Stephen Fisher of BlackRock, Matthias Graulich of Deutsche Boerse, Michael Huertas of Dentons and Hubertus Vaeth of Frankfurt Main Finance.
One panellist said: “We’re putting a lot of capital in to preserve the status quo, in an environment where, even with equivalence, its effectiveness may be dampened by certain EU member states that will demand that you have to have an office on the ground.”
Panellists explained that equivalence is something that the UK has been pushing to effectively secure access from London to the continent, but they noted that the shape of EU policy will “change without the UK”.
The UK has brought many proposals relating to financial services to the EU, which one panellist said would “not have seen the light of day” otherwise.
Another panellist noted London’s place as the financial capital of Europe, where everything sat under one regime and framework, with 95 percent of financial business taking place in London.
He noted that, post-Brexit, these regulatory frameworks will no longer apply and will be something that the EU is looking at as a
potential concern.
The panellist explained that in 2008 the EU saw that financial services could be a big threat if something goes wrong, and a lack of regulatory control would “hardly be acceptable from an EU perspective”, given the breadth of the UK’s financial services industry.
A panellist said that regulators have an “overarching objective of client protection”, but politics gets in the way of these solutions.
On the topic of politics, another panellist said that it is “incredibly worrying” that the UK Government has remained quiet about the financial services industry in relation to its Brexit strategy, while financial services lead as the UK’s biggest export.
The speaker explained that despite the UK doing better than initial forecasts after the referendum, economic growth in 2018 is expected to be the “worst since the global financial crisis”, at 1.5 percent.
The speaker added that a transitional deal may not be long enough and the UK could likely apply to rejoin the EU by 2027.
Another panellist opined that it was difficult to see what the opportunities of Brexit are, but noted that his clients may begin to see a more “local touch” in Europe.
However, it was not all doom and gloom, with another panellist explaining that the UK government will be able to cement its own trade deals.
He compared the Frankfurt and London arrangement to Japan and Hong Kong, where Japan is a tightly regulated environment, while Hong Kong looks to the rest of the world.
Another panellist said that in the same way Frankfurt opened its doors the day after the Brexit referendum, Hong Kong has been “actively trying to get businesses to relocate there”. He added: “I don’t think it’s fully manifested itself yet, but there’s potential for now.”
On Frankfurt, discussions were abound over whether Frankfurt would become the new European financial hub, post-Brexit.
Panellists offered multiple opinions on this, with some arguing that an industry move is a tough project, while others claimed that there was little to no alternative.
One panellist explained that convincing people to move to Frankfurt will be “difficult”, with a “top to bottom review” of all processes.
The panellist said that this would not be an easy process, as “anything that big has a lot of complexity to it”.
Another panellist added that it was unlikely that “100,000 bankers” would move to Frankfurt, but noted that various firms have been setting up “interim solutions”, where they set up an office with “15 people and a server”.
The panellist said that these interim solutions are causing “trust issues”, as the European Central Bank was expecting “large groups of employees to come over”.
He said that UK firms are looking to transition over a longer period because “we can’t expect a large number of people to move over to Europe”.
What is important, he says, is that UK firms should be “open” and explain they are looking to transition over a long period of time.
Another panellist explained that Frankfurt is the ideal place to set up in Europe as it “mirrors London”.
“Frankfurt is the seventh most liveable city in the world, it has the market infrastructure and a talent pool.”
The panellist explained that people are “moving ahead, getting ready and taking this very seriously”.
“No one wants to let us fall out without a transition deal. But if you look at recent history, who would have thought that Donald Trump would become president of the US?”
“Relying on hopes and feelings is totally inappropriate at this time and the focus should be on preparing for the worst.”
Another panellist said that Brexit might provide the opportunity for firms to build up around new infrastructures and technologies, with the masters of these areas becoming the “winners”.
Panellists were asked what, post-Brexit, the UK can rip up from EU legislation that will really benefit London’s financial centre, but the majority of them agreed that it was “more about amending than ripping chunks out of the rulebook”.
One panellist explained: “If we live in a world where sovereign states are committed to what they have signed in the past, the UK can amend certain aspects, but they can’t completely depart from the principles it signed up to.”
“The policy makers of the EU have a very strong impetus to ensure that the UK remains an equal partner.”
“The rest of the world’s business will be done out of London. If we want equivalence, we have to keep the rulebook pretty much aligned.”
Brexit was not all that was discussed, however, and in an insightful session from Bertrand Huet, senior vice president, partner, and co-head of Financial Services at FleishmanHillard, explained how the “ghosts” of the 2011 sovereign debt crisis are “back in the heads of the people in Brussels”.
Huet said that this fear was a result of the market reaction to recent elections in Italy earlier this year and contagion concerns.
The elections were held on 4 March 2018 after Italy’s parliament was dissolved by ex-president Sergio Mattarella in December 2017 and resulted in the League, a centre-right coalition led by Matteo Salvini, coming into power.
Under Salvini, the party has, to some extent, embraced Italian nationalism and emphasised Euroscepticism and opposition to immigration, he said.
The party has historically advocated the transformation of Italy into a federal state, fiscal federalism and greater regional autonomy, especially for Northern regions.
Huet said that the Italian elections are a “reminder” that populism in Europe didn’t end with French president Emmanuel Macron’s defeat of Marine Le Pen last year.
Huet noted that Europe “still has another nine elections in the next year and a half”.
“Forget Brexit, what’s most concerning for the EU leadership is that the Italian government is showing an intention, perhaps not to leave the euro, but certainly to divide Europe, as can be seen from the migration.”
In his welcome remarks, ISLA CEO Andrew Dyson, said that the conference, ISLA’s largest to date, aimed to both inform and challenge delegates.
Dyson said that the association wanted to show delegates what it had been doing over the past year, but also wanted to promote thoughtful discussion.
He explained that events like ISLA’s annual conference work best when you hear more from the delegates than the speakers.
In the opening keynote speech, Gabriela Figueiredo Dias, chairperson of Portugal’s Securities Market Commission, said that financial markets must “reassure” people of their reliability and “rebuild trust” in the coming years.
Figueiredo Dias said that this was one of the “key trends” the financial services industry would be seeing.
She explained: “In general, we as the financial sector are perceived to have failed the global economy at the beginning of
the century.”
“We must now show that lessons have been learned and that we can build an efficient financial system. This is our most valuable contribution to unlocking the potential growth of our economies. We need to reassure people of the reliability of the financial markets,” noting that this was particularly important for Europe.
In Europe, Figueiredo Dias said there were already some positives, with the continent moving towards a market focused economy.
“In the securities lending market, despite some quarterly episodes, the end of 2017 was much less tumultuous than the year before. This was welcome considering the changing regulatory environment that we are facing. In Europe, the worst of the crisis is now behind us.”
However, Figueiredo Dias noted that despite these positive trends, the level of uncertainty remains particularly high, with growth momentum stabilising, while private and public debt continue to cast a shadow.
The dominating theme of this year’s conference was, as usual, Brexit, with speakers and delegates alike discussing the political impact of the UK’s vote to leave the EU, as well as the ramifications for regulation and the industry.
In one session, panellists discussed how a lot of the capital that could be used to innovate, is being used to “maintain the status quo”, as a result of Brexit.
Panellists included James Knightley of ING, Ed Bracken of Morgan Stanley, Stephen Fisher of BlackRock, Matthias Graulich of Deutsche Boerse, Michael Huertas of Dentons and Hubertus Vaeth of Frankfurt Main Finance.
One panellist said: “We’re putting a lot of capital in to preserve the status quo, in an environment where, even with equivalence, its effectiveness may be dampened by certain EU member states that will demand that you have to have an office on the ground.”
Panellists explained that equivalence is something that the UK has been pushing to effectively secure access from London to the continent, but they noted that the shape of EU policy will “change without the UK”.
The UK has brought many proposals relating to financial services to the EU, which one panellist said would “not have seen the light of day” otherwise.
Another panellist noted London’s place as the financial capital of Europe, where everything sat under one regime and framework, with 95 percent of financial business taking place in London.
He noted that, post-Brexit, these regulatory frameworks will no longer apply and will be something that the EU is looking at as a
potential concern.
The panellist explained that in 2008 the EU saw that financial services could be a big threat if something goes wrong, and a lack of regulatory control would “hardly be acceptable from an EU perspective”, given the breadth of the UK’s financial services industry.
A panellist said that regulators have an “overarching objective of client protection”, but politics gets in the way of these solutions.
On the topic of politics, another panellist said that it is “incredibly worrying” that the UK Government has remained quiet about the financial services industry in relation to its Brexit strategy, while financial services lead as the UK’s biggest export.
The speaker explained that despite the UK doing better than initial forecasts after the referendum, economic growth in 2018 is expected to be the “worst since the global financial crisis”, at 1.5 percent.
The speaker added that a transitional deal may not be long enough and the UK could likely apply to rejoin the EU by 2027.
Another panellist opined that it was difficult to see what the opportunities of Brexit are, but noted that his clients may begin to see a more “local touch” in Europe.
However, it was not all doom and gloom, with another panellist explaining that the UK government will be able to cement its own trade deals.
He compared the Frankfurt and London arrangement to Japan and Hong Kong, where Japan is a tightly regulated environment, while Hong Kong looks to the rest of the world.
Another panellist said that in the same way Frankfurt opened its doors the day after the Brexit referendum, Hong Kong has been “actively trying to get businesses to relocate there”. He added: “I don’t think it’s fully manifested itself yet, but there’s potential for now.”
On Frankfurt, discussions were abound over whether Frankfurt would become the new European financial hub, post-Brexit.
Panellists offered multiple opinions on this, with some arguing that an industry move is a tough project, while others claimed that there was little to no alternative.
One panellist explained that convincing people to move to Frankfurt will be “difficult”, with a “top to bottom review” of all processes.
The panellist said that this would not be an easy process, as “anything that big has a lot of complexity to it”.
Another panellist added that it was unlikely that “100,000 bankers” would move to Frankfurt, but noted that various firms have been setting up “interim solutions”, where they set up an office with “15 people and a server”.
The panellist said that these interim solutions are causing “trust issues”, as the European Central Bank was expecting “large groups of employees to come over”.
He said that UK firms are looking to transition over a longer period because “we can’t expect a large number of people to move over to Europe”.
What is important, he says, is that UK firms should be “open” and explain they are looking to transition over a long period of time.
Another panellist explained that Frankfurt is the ideal place to set up in Europe as it “mirrors London”.
“Frankfurt is the seventh most liveable city in the world, it has the market infrastructure and a talent pool.”
The panellist explained that people are “moving ahead, getting ready and taking this very seriously”.
“No one wants to let us fall out without a transition deal. But if you look at recent history, who would have thought that Donald Trump would become president of the US?”
“Relying on hopes and feelings is totally inappropriate at this time and the focus should be on preparing for the worst.”
Another panellist said that Brexit might provide the opportunity for firms to build up around new infrastructures and technologies, with the masters of these areas becoming the “winners”.
Panellists were asked what, post-Brexit, the UK can rip up from EU legislation that will really benefit London’s financial centre, but the majority of them agreed that it was “more about amending than ripping chunks out of the rulebook”.
One panellist explained: “If we live in a world where sovereign states are committed to what they have signed in the past, the UK can amend certain aspects, but they can’t completely depart from the principles it signed up to.”
“The policy makers of the EU have a very strong impetus to ensure that the UK remains an equal partner.”
“The rest of the world’s business will be done out of London. If we want equivalence, we have to keep the rulebook pretty much aligned.”
Brexit was not all that was discussed, however, and in an insightful session from Bertrand Huet, senior vice president, partner, and co-head of Financial Services at FleishmanHillard, explained how the “ghosts” of the 2011 sovereign debt crisis are “back in the heads of the people in Brussels”.
Huet said that this fear was a result of the market reaction to recent elections in Italy earlier this year and contagion concerns.
The elections were held on 4 March 2018 after Italy’s parliament was dissolved by ex-president Sergio Mattarella in December 2017 and resulted in the League, a centre-right coalition led by Matteo Salvini, coming into power.
Under Salvini, the party has, to some extent, embraced Italian nationalism and emphasised Euroscepticism and opposition to immigration, he said.
The party has historically advocated the transformation of Italy into a federal state, fiscal federalism and greater regional autonomy, especially for Northern regions.
Huet said that the Italian elections are a “reminder” that populism in Europe didn’t end with French president Emmanuel Macron’s defeat of Marine Le Pen last year.
Huet noted that Europe “still has another nine elections in the next year and a half”.
“Forget Brexit, what’s most concerning for the EU leadership is that the Italian government is showing an intention, perhaps not to leave the euro, but certainly to divide Europe, as can be seen from the migration.”
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