ISLA battles ESMA over UCITS, stating ‘confusing guidance’
04 April 2012 London
Image: Shutterstock
ISLA submitted a response to ESMA’s consultation paper relating to UCITS, raising three key points.
Transparency:
ISLA agreed with ESMA’s concerns over transparency, but asserted that the body should produce standardised text when describing risk, specifically for UCITS, to ensure consistency. ISLA also stated that UCITS requirements should not be so frequent, given the cost of updating.
Collateral and Cash re-investment:
“Our view is that by setting guidelines which look to correlate collateral to the UCITS portfolio, or combine collateral with UCITS unlent holdings, may be operationally complex, cumbersome and costly to manage, while resulting in additional risks to the UCITS”, said Kevin McNulty, chief executive of ISLA, adding that guidance pertaining to the re- investment of cash collateral is confusing and should be clarified.
Counterparty limits:
ISLA argued that limiting the proportion of the portfolio that can be lent, by counterparty or at portfolio level, will limit the opportunities for UCITS in securities lending and lead to reduced competitiveness for UCITS in the global securities lending market. Provided the risk management techniques are robust, said ISLA, and appropriate collateral and haircuts are received, limits are not necessary.
Transparency:
ISLA agreed with ESMA’s concerns over transparency, but asserted that the body should produce standardised text when describing risk, specifically for UCITS, to ensure consistency. ISLA also stated that UCITS requirements should not be so frequent, given the cost of updating.
Collateral and Cash re-investment:
“Our view is that by setting guidelines which look to correlate collateral to the UCITS portfolio, or combine collateral with UCITS unlent holdings, may be operationally complex, cumbersome and costly to manage, while resulting in additional risks to the UCITS”, said Kevin McNulty, chief executive of ISLA, adding that guidance pertaining to the re- investment of cash collateral is confusing and should be clarified.
Counterparty limits:
ISLA argued that limiting the proportion of the portfolio that can be lent, by counterparty or at portfolio level, will limit the opportunities for UCITS in securities lending and lead to reduced competitiveness for UCITS in the global securities lending market. Provided the risk management techniques are robust, said ISLA, and appropriate collateral and haircuts are received, limits are not necessary.
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