Brexit may push out small lenders
22 June 2017 London
Image: Shutterstock
Smaller beneficial owners are at risk of being pushed out the market by rising regulatory compliance costs, a revenue squeeze and Brexit.
According to ISLA Securities Finance and Collateral Management Conference speakers, the larger lenders in the market have the resources to absorb the costs of incoming reporting standards in the form of the Securities Financing Transactions Regulation (SFTR).
In a poll of audience members, 43 percent said they expect the added cost of SFTR reporting obligations to force them to change their business model.
Smaller beneficial owners are also less likely to have access to the resources to effectively manage the risk/reward factors of maintaining a securities lending programme, and as such may choose to shut up shop rather than fall foul of their own risk management standards.
As SFTR and other regulatory deadlines approach, the ramifications of a ‘hard Brexit’, which is expected to involve a complete separation of the UK from the EU's single market and forfeiting of financial passporting rights, may compound the challenges threatening small lenders in the market.
One panellist predicted that, although questions remain around how the negotiations will proceed, the final result will be closer to a hard than a soft Brexit.
A conference speaker representing a European bank was unphased by Brexit and mused that the only issue was where to move his UK sales team to in the EU. However, the speaker acknowledged that once again, the largest players would be able to adapt but that smaller counterparts would be the ones to suffer.
According to ISLA Securities Finance and Collateral Management Conference speakers, the larger lenders in the market have the resources to absorb the costs of incoming reporting standards in the form of the Securities Financing Transactions Regulation (SFTR).
In a poll of audience members, 43 percent said they expect the added cost of SFTR reporting obligations to force them to change their business model.
Smaller beneficial owners are also less likely to have access to the resources to effectively manage the risk/reward factors of maintaining a securities lending programme, and as such may choose to shut up shop rather than fall foul of their own risk management standards.
As SFTR and other regulatory deadlines approach, the ramifications of a ‘hard Brexit’, which is expected to involve a complete separation of the UK from the EU's single market and forfeiting of financial passporting rights, may compound the challenges threatening small lenders in the market.
One panellist predicted that, although questions remain around how the negotiations will proceed, the final result will be closer to a hard than a soft Brexit.
A conference speaker representing a European bank was unphased by Brexit and mused that the only issue was where to move his UK sales team to in the EU. However, the speaker acknowledged that once again, the largest players would be able to adapt but that smaller counterparts would be the ones to suffer.
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