How is the association assisting with the industry with the challenges of SFTR?
Andrew Dyson: The Securities Financing Transaction Regulation (SFTR) is the single most important piece of mandatory reporting ever seen in our industry, and we believe that it is vitally important that the industry works together to ensure a smooth and coordinated implementation process as possible. Set against that backdrop, I believe the role of International Securities Lending Association (ISLA) is to work with the various industry stakeholders to ensure, wherever possible, a consistency of approach around the key elements of the reporting regime. Lead by Richard Colvill, we have set up a cross-industry steering group to address key areas of the implementation process.
Tell us about the working groups and who is involved?
Richard Colvill: A Steer Committee has been carefully constructed and consists primarily of tier-1 participants who represent an important demographic in the industry. We have targeted individuals who have historically been most active in this space and who are known to ISLA for their continued work and interest in SFTR. This group has a mix of lenders and borrowers, agency, principal, direct and third-party, broker-dealers and international central securities depository. This will be the group that decides the industry standard for delivery and they will be invited to disclose and share all of the work that they have completed so far, to prevent a duplication of efforts, to be transparent and effectively ‘open-source’.
Where individuals are unable to attend for any reason, then they will be invited to delegate to a proxy. It is understood that some members may on occasions chose to send more than one representative; in this scenario, ISLA reserves the right to govern this accordingly and/or ensure that such instances are only represented once in a boardroom vote.
Beneath the Steer Committee, we have created various other sub-working groups; namely the triparty collateral agents, vendors and service providers and trade repositories.
It is envisaged that all progress made by the Steer Committee will propagate down to the benefit of these groups and, conversely, any issues requiring escalation can be addressed by the board.
What are the main challenges your members face around SFTR?
Dyson: The main challenges I see around SFTR for our members are somewhat varied.
The first issue I foresee will be the collection of data, as the information required to meet the reporting obligation is likely to sit in disparate internal systems. Furthermore, it’s not just the initial position that needs to be reported, but all lifecycle events during the duration of the transaction.
The next point is the specific reporting timelines that need to be met by both sides of the market. In particular, collateral reporting will be a challenge given the level of granularity set by the obligation.
Let’s not forget that borrowers are relying on lenders for circa 25 percent of the data they need to meet their reporting obligation. This is further compounded as we estimate 60 percent of all open securities lending transactions originate from lenders outside of Europe, for example, who fall outside of the reporting obligation.
How is the association assisting with peoples’ understanding of SFTR?
Dyson: Our primary mechanism has been the long-standing working group that ISLA has chaired. However, this topic has been integral to much of our communication for the past 12 to 18 months through the conferences, roundtables and other mediums such as the securities lending market report, where we have featured relevant thought leadership.
Colvill: The steering group is playing a key role in furthering the industry’s understanding of the regulation, as the very nature of the detailed discussions allows the industry to explore every aspect of the legislation.
How have other regulations helped to prepare for SFTR? Are there any similarities?
Dyson: SFTR is a piece of reporting legislation the like of which we have never seen before. Having said that the recent implementation of the Markets in Financial Instruments Directive and Markets in Financial Instruments Regulation has introduced the concept of more broadly-based reporting to many of our member firms. However, these regulations have predominantly impacted the banks and therefore our borrowers are perhaps better prepared to comply with these big reporting regimes. Conversely, the level of reporting will be a new concept for many of the lenders, notably institutional investors.
Do you feel this will be too much of a burden for the industry?
Dyson: I believe that there will be causalities along the way, however, we should embrace the transparency objectives set by the regulators. There is no doubt that the burden of the reporting obligation will favour those institutions that have scale within the industry.
Will it keep getting delayed and end up watered down?
Dyson: Notwithstanding the differences between the European Securities and Markets Authority and the European Commission, the commission has made it very clear that adoption of the technical standards will take place, and that will be by the end of the year.
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