In the driver’s seat
27 June 2019
Richard Colvill of ISLA discusses how the association is helping the industry prepare for SFTR and how its steering committee shapes the future of securities lending
Image: Shutterstock
How are the ISLA working groups helping industry participants prepare for SFTR?
The International Securities Lending Association (ISLA) has appointed a dedicated project team to tackle the many issues related to this European shadow banking legislation. The team is four-strong and works exclusively on this topic, with the simple objective to help deliver ‘best-practice’ to the industry. ISLA acts as a conduit to the regulators and, working with the industry, provides feedback to the European Securities and Markets Association (ESMA), challenging many of the finer points within the regulatory technical standards and implementation of the technical standards. The feedback to ESMA is derived from many hours of forensic analysis and debate by steering committee and associated working groups; assembled to tackle the many identified issues. While considered informal, ISLA was fortunate enough to present its findings to the senior policy officer at ESMA in a dedicated forum hosted by one of our member firms. During this consultation, we were able to articulate our findings, and in many cases, provide carefully constructed arguments in the case of no alternatives should our proposed solutions not be granted.
Are the ISLA working groups well attended and what insight can be gained from them?
The steering committee acts as our executive board, deliberating on all issues raised in this forum and in all other working groups. Its 16 members’ companies were chosen to ensure a diverse participation and representation from all demographics within the industry. Meeting every two weeks and for up to four hours at a time, the steering committee is well placed to analyse a lot of content and drive solutions. With ISLA chairing and the members acting as stakeholders and a democracy, this group is well placed to debate and vote on all contentious issues and propose the best direction of travel for the entire industry. This year, ISLA has opened up telephone participation to all ISLA members so that this meeting is not exclusively for this group. We continue to welcome anyone who wishes to dial-in.
In addition to the steering committee we also host three dedicated working groups for vendors, tri-party collateral providers and trade associations to resolve numerous topic specific issues. These meetings are held monthly and often raise issues that require escalation to the steering committee. The Trade Association WG is a forum that ISLA chairs, bringing together over 10 associations globally. It provides a platform to share knowledge with the industry in a collaborative way and to ensure a common approach to implementation. We happily distribute all of our project documentation with these associations, so they too can disseminate them to their membership.
Examples of this include our findings supporting issuer legal entity identifier (LEI) gap analysis, agent lender data provision, counterparty and participant LEI construction logic, corporate actions analysis. Alongside our friends at the International Capital Markets Association, we drive innovation in this space and lead by pushing content.
How well is the industry collaborating in preparation for SFTR?
We’ve seen a rise in interest since passing the 12-month marker, prior to entry-into-force of the Securities Financing Transactions Regulation (SFTR), with many of the outliers now seemingly more focused. Most of the tier-1 banks and larger industry participants who are well resourced, have been taking an active role in their analysis since early 2018. They are well prepared, with many sitting on the board of the steering committee. Many of these board members are industry thought-leaders and subject matter experts who seem very happy to collaborate, recognising that it is in their best interests if there is agreement on best-practice.
There are two dynamics in the Vendor WG, those companies who manage trading platforms and have an obligation to their existing clients, and those who are seeking a commercial advantage by selling solutions in this space. These participants are playing together nicely and are sharing knowledge without encumbrance, seemingly comfortable to be transparent.
What do you anticipate the biggest challenges will be in the first few months of SFTR go live?
We have seen in previous legislation, for example the European Market Infrastructure Regulation, that the matching rates are initially quite low. Many agent lenders will not have a reporting obligation to the regulators until the 11 October 2020, being a phase three entrant, but they will have to provide data to their borrowers who go-live on the 11 April 2020.
The backloading process will be a challenge due to the matching requirements, where applicable. Participants are advised to ensure that they conduct a suitable pre-matching process or contract comparison prior to reporting, to ensure a higher success rate at the trade repository.
Do you think SFTR will provide the industry with opportunities in the longer term?
This reporting obligation is a good initiative as it provides participants with the opportunity to take a long, hard look at their booking practices and controls. It provides the perfect opportunity to clean-up their data and pre/post-trade processes, leading to higher straight-through processing rates and settlement efficiencies.
The unparalleled transparency that SFTR will provide to the regulators will strengthen our product and remove the doubts surrounding our industry, which have led to this legislation being proposed after the crisis in 2007. So the spotlight being shone on shadow-banking is not a bad thing
The International Securities Lending Association (ISLA) has appointed a dedicated project team to tackle the many issues related to this European shadow banking legislation. The team is four-strong and works exclusively on this topic, with the simple objective to help deliver ‘best-practice’ to the industry. ISLA acts as a conduit to the regulators and, working with the industry, provides feedback to the European Securities and Markets Association (ESMA), challenging many of the finer points within the regulatory technical standards and implementation of the technical standards. The feedback to ESMA is derived from many hours of forensic analysis and debate by steering committee and associated working groups; assembled to tackle the many identified issues. While considered informal, ISLA was fortunate enough to present its findings to the senior policy officer at ESMA in a dedicated forum hosted by one of our member firms. During this consultation, we were able to articulate our findings, and in many cases, provide carefully constructed arguments in the case of no alternatives should our proposed solutions not be granted.
Are the ISLA working groups well attended and what insight can be gained from them?
The steering committee acts as our executive board, deliberating on all issues raised in this forum and in all other working groups. Its 16 members’ companies were chosen to ensure a diverse participation and representation from all demographics within the industry. Meeting every two weeks and for up to four hours at a time, the steering committee is well placed to analyse a lot of content and drive solutions. With ISLA chairing and the members acting as stakeholders and a democracy, this group is well placed to debate and vote on all contentious issues and propose the best direction of travel for the entire industry. This year, ISLA has opened up telephone participation to all ISLA members so that this meeting is not exclusively for this group. We continue to welcome anyone who wishes to dial-in.
In addition to the steering committee we also host three dedicated working groups for vendors, tri-party collateral providers and trade associations to resolve numerous topic specific issues. These meetings are held monthly and often raise issues that require escalation to the steering committee. The Trade Association WG is a forum that ISLA chairs, bringing together over 10 associations globally. It provides a platform to share knowledge with the industry in a collaborative way and to ensure a common approach to implementation. We happily distribute all of our project documentation with these associations, so they too can disseminate them to their membership.
Examples of this include our findings supporting issuer legal entity identifier (LEI) gap analysis, agent lender data provision, counterparty and participant LEI construction logic, corporate actions analysis. Alongside our friends at the International Capital Markets Association, we drive innovation in this space and lead by pushing content.
How well is the industry collaborating in preparation for SFTR?
We’ve seen a rise in interest since passing the 12-month marker, prior to entry-into-force of the Securities Financing Transactions Regulation (SFTR), with many of the outliers now seemingly more focused. Most of the tier-1 banks and larger industry participants who are well resourced, have been taking an active role in their analysis since early 2018. They are well prepared, with many sitting on the board of the steering committee. Many of these board members are industry thought-leaders and subject matter experts who seem very happy to collaborate, recognising that it is in their best interests if there is agreement on best-practice.
There are two dynamics in the Vendor WG, those companies who manage trading platforms and have an obligation to their existing clients, and those who are seeking a commercial advantage by selling solutions in this space. These participants are playing together nicely and are sharing knowledge without encumbrance, seemingly comfortable to be transparent.
What do you anticipate the biggest challenges will be in the first few months of SFTR go live?
We have seen in previous legislation, for example the European Market Infrastructure Regulation, that the matching rates are initially quite low. Many agent lenders will not have a reporting obligation to the regulators until the 11 October 2020, being a phase three entrant, but they will have to provide data to their borrowers who go-live on the 11 April 2020.
The backloading process will be a challenge due to the matching requirements, where applicable. Participants are advised to ensure that they conduct a suitable pre-matching process or contract comparison prior to reporting, to ensure a higher success rate at the trade repository.
Do you think SFTR will provide the industry with opportunities in the longer term?
This reporting obligation is a good initiative as it provides participants with the opportunity to take a long, hard look at their booking practices and controls. It provides the perfect opportunity to clean-up their data and pre/post-trade processes, leading to higher straight-through processing rates and settlement efficiencies.
The unparalleled transparency that SFTR will provide to the regulators will strengthen our product and remove the doubts surrounding our industry, which have led to this legislation being proposed after the crisis in 2007. So the spotlight being shone on shadow-banking is not a bad thing
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