The International Securities Lending Association (ISLA) response to FSB’s Consultative Document: A Policy Framework for addressing Shadow Banking Risks in Securities Lending and Repos published 18th November 2012,sent to FSB 14 Jan 2013.
ESMA has now published the official translations of the UCITS ETF guidelines on its website today, which triggers a two month period during which national authorities have to declare to ESMA whether they plan to comply, or explain the reasons of non-compliance.
We are still expecting ESMA to publish a Q&A document to supplement the guidance but the timing of this is not known.
ESMA has published its final guidelines on repurchase and reverse repurchase agreements for UCITS funds. You may recall that when ESMA published it’s guidance for UCITS in the summer it consulted on the use of repos by UCITS with a view to issuing further guidance. The latest guidelines state that UCITS should only enter into such agreements if they are able to recall at any time any assets or the full amount of cash. ESMA considers fixed-term repurchase and reverse repurchase agreements that do not exceed seven days as arrangements that allow the assets to be recalled at any time.
The guidelines will now be translated into all EU languages and will be incorporated into ESMA’s guidelines on ETFs and other UCITS issues, which were published in July 2012. The full set of guidelines will enter into force two months after the publication of the translations
The FSB has published a consultation document in which it sets out certain policy recommendations for “Addressing Shadow Banking Risks in Securities Lending and Repo”. The FSB is looking for responses to its paper by 14th January and we will be setting up an initial call for members to start the process of formulating an ISLA response. As the paper has only just been published we have not yet reviewed it in detail. As expected the paper contains recommendations covering transparency, minimum haircuts, cash collateral reinvestment and rehypothecation. The paper also mentions CCPs but does not suggest that these be mandatory. Encouragingly the paper focuses on actual shadow banking risks as opposed to all securities lending activity (an approach which we have argued for). This appears to mean that the discussion around minimum haircuts is focused on financing transactions rather than vanilla securities lending.
We will produce a more thorough analysis of the paper shortly and set up a call in the next two weeks. In the meantime please feel free to share any observations or comments that you think are important.