ISLA has responded to ESMA’s consultation on various aspects of MiFID II concerning two key areas that relate to the securities lending market. The first covers some proposed restrictions on the use of Title Transfer Financial Collateral Arrangements (TTCA) and the second, some requirements for MiFID regulated firms to report securities lending activity to clients. ESMA is considering the extent to which TTCA should be restricted for retail and potentially other clients, to ensure that firms do not use TTCA to avoid client safekeeping of assets responsibilities. ISLA argues that securities lending undertaken by banks and investment firms for investors should fall outside of the proposed restrictions, as a) these arrangements do not result in avoidance of client asset safekeeping rules, and b) the restrictions would be damaging to markets and investors. Regarding reporting to clients, ISLA requests that MiFID II requirements should defer to the new rules that will be established under the Securities Finance Regulation. The response can be found here.
ISLA Feedback to the International Corporate Governance Network (ICGN) on its draft Global Governance Principles.
ISLA has provided feedback to the ICGN on its draft Global Governance Principles. The draft principles include a section on stock lending which deals with the issue of shareholders recalling shares if they wish to vote. We have suggested a number of changes to the ICGN draft language and a copy of our response letter can be found here.
Given the issues to do with the interaction of securities lending and corporate governance that occasionally get raised, ISLA decided to join the ICGN last year with the objective of developing stronger ties and an open dialogue with the corporate governance community.
The Data Experts Group was established by the FSB’s Workstream 5 committee to establish standards for the collection and aggregation of data on SFTs from regional and local regulators. Following a roundtable meeting organised by the DEG in London in March, ISLA and the RMA have sent a joint comment letter aimed at providing guidance. The letter proposes that regulators and the FSB should consider collecting data at the Agent Lender Disclosure level. This approach would have the advantage of building on existing reporting capabilities and provide detailed reporting that could be aggregated by the FSB. A copy of which can be found here
ISLA response to Central Bank of Ireland’s
consultation CP77: Consultation on publication of UCITS rulebook.
Please find attached here ISLA's response to the Central Bank of Ireland's consultation paper concerning amendments to the UCITS Rulebook for you information.
The response was prepared following discussions with the UCITS working group and I would like to thank them for their help in this matter.
ESMA has now published it’s revision to the Guidelines following consultation. We will produce a fuller analysis but ESMA has listened to arguments from us and other market associations and extended the new collateral diversification requirements to all UCITS and not just money market funds as proposed. Under the new guidelines, UCITS that receive collateral from any one issuer of more than 20% of its NAV are required to make additional disclosures, and ESMA further requires that collateral must be diversified across at least 6 different issues.
The new Guidelines can be found here.
ISLA responds to ESMA’s consultation document “Revision of the provisions on diversification of collateral in ESMA’s guidelines on ETFs and other UCITS”.
ISLA has submitted a response to ESMA’s consultation on proposals to amend the collateral diversification rules contained in its guidelines for ETFs and other UCITS. The current guidelines require that no more than 20% of the NAV of a UCITS may be held in collateral from any one issuer. In the consultation ESMA consider allowing a derogation from this provision for government issued collateral in certain circumstances. The proposal is that this derogation should be limited to money market fund UCITS only to allow them to use higher volumes of reverse repo against a single government issuer.
ISLA argues that whilst it supports the proposal, the derogation should be available to all UCITS (not just MMFs). A copy of ISLA’s response can be found here.
Draft EU regulation on reporting and transparency of SFTs – Clifford Chance Briefing
Further to our announcement last month you may be interested to read a briefing note from Clifford Chance on this development. The briefing note can be accessed here.
We are pleased to announce that following the recent bye-election Arne Theia from Unicredit Bank has been elected to the ISLA Board.
Law Commission: CP 215: FIDUCIARY DUTIES OF INVESTMENT INTERMEDIARIES
ISLA has submitted a response to the UK Law Commission's consultation paper CP 215: FIDUCIARY DUTIES OF INVESTMENT INTERMEDIARIES. The paper is a follow up to the Kay Review to which ISLA previously responded and asks whether the FCA should consider further regulation of the securities lending activity of custodians (particularly in relation to the payment of fees). ISLA argues that existing FCA regulation in this area (alongside the more recent Guidelines for UCITS issued by ESMA) is sufficient for dealing with any concerns. The consultation paper can be found here and ISLA's response here.