The International Securities Lending Association’s chief executive Andy Dyson talks to Ramla Soni

SECURITIES FINANCE ANDREW DYSON, INTERNATIONAL SECURITIES LENDING ASSOCIATION

‘Most looking forward to a normalised year’, says ISLA’s Dyson

The International Securities Lending Association’s chief executive Andy Dyson talks to Ramla Soni about the state of the industry it represents.

As we delve into the new year and look back on 2021, the securities lending industry’s main trade body said one of the things it is “most looking forward to is a more normalised year”.

Speaking to Global Investor, Andrew Dyson, CEO of the International Securities Lending Association (ISLA), said everyone will “welcome a more normalised year and working environment” after working remotely for most of last year.

“Although, we adapted well to working from home and reflecting the needs of our members, this is an industry that thrives on engagement,” Dyson said. “Unlike some markets where it’s quite remote and anonymised, this is a sector that functions around those personal relationships that people have”.

However, although the last year was “challenging”, Dyson said he is happy that most of the major things the organisation wanted to accomplish were achieved.

Firstly, there were two big elements to the Central Securities Depository Regulation (CSDR), which was a “big area of focus from an advocacy perspective”, Dyson said.

One element was the mandatory buying regime, which “after a considerable joint association and market efforts to get the mandatory buy-ins deferred, we successfully achieved that, in December which was a big element of 2021,” Dyson explained.

Since the clarification of buy-ins, the association has been working “extensively” with members around

Due to ESG, which is the biggest single change to the way we think about lending in the front office, and which is driving and changing fund manager behaviour, the way people think about lending in this context is changing, and as an industry that needs responding.

When you have a persistently high settlement fail rate at 10%, you need to understand what the root causes for that are, and not create something else that just allows you to deal with it in a more efficient way.

how they rethink their business to minimise fails.

ISLA said this is a “very positive outcome for the industry, the association, and our members”, he added.

The other element to CSDR is fines for failing settlements which are to come into effect from February 1.

Dyson said: “We expect February and March to be pretty turbulent months when it comes to understanding what’s going on”, adding that “some of the fines are going to be much bigger than people expect”.

Another accomplishment from last year is in the digital space which is a “strategic focus for ISLA”, Dyson said.

In the middle of last year, the association delivered a minimum viable product within the Common Domain Model (CDM) for securities lending, which was a “big milestone delivery”.

From a technical perspective, this means “the code is being made available in open source, which allows market participants, vendors and other stakeholders when they’re looking to develop and build platforms or products, to now build those in the confidence and to an industry standard”, Dyson explained.

“Over time, that means even simple things about how you describe a transaction will become standardised, so when you have things like reporting, and in due course, digital reporting coming through from regulators, it makes that process much easier.”

Alongside that, ISLA also developed the ISLA Clause Library & Taxonomy, centring around the legal business, which Dyson described as “a big step along the way to building the standard terms of a contract into the CDM”.

He continued: “ISLA began and completed the process of standardising the terms and business outcomes in those agreements, which meant that we recognised early in the process that there were many variances to terms that people use to get a standard outcome. Now when people are negotiating contracts, they just look at the outcomes they want to get to and pull the term that relates to it, making the legal process much quicker and more streamlined.”

Another highlight for ISLA in 2021 was becoming a founding member of the Global Alliance of Security Lending Association (GASLA). In doing so, the association “was able to respond to a desire from its members to speak with one voice globally on certain issues, many of which related to Environmental, Social, and Governance (ESG)”.

Dyson said: “Due to ESG, which is the biggest single change to the way we think about lending in the front office, and which is driving and changing fund manager behaviour, the way people think about lending in this context is changing, and as an industry that needs responding.”

Therefore, the first thing that ISLA published under the GASLA banner was a best practice guide to voting in the context of security lending.

“There is more to come this year in that space around things like collateral”, Dyson added.

In terms of ISLA’s agenda around collaboration, they also worked with the Pan-Asian Securities Lending Association (PASLA), which Dyson said led to a “slightly different approach” in how the association now handles its master agreement and how it has been used, particularly in Asia.

Dyson explained that previously if people wanted a particular annex that covered a specific country in Asia, it was developed away from the association.

So, in collaborating with PASLA, the association decided it was a “good idea to bring that process primarily back into the world where the Global Master Securities Lending Agreements sit”.

Although there is more work to do as ISLA “broadens out the reach” of its master agreements, Dyson said the association has “already seen a huge level of interest” from member firms, both in Asia and Europe.

“Over time we think that is going to deliver huge incremental benefits in terms of efficiencies to our over 170 members”, Dyson added.

Another area ISLA would like to continue to focus on this year is recognising and understanding settlement fail rates.

Dyson said: “When you have a persistently high settlement fail rate at 10%, you need to understand what the root causes for that are, and not create something else that just allows you to deal with it in a more efficient way.”

He added, in a world pre-CSDR, the 10% rate “may be interesting, but not more than what CSDR will bring with it, such as real monetary penalties”.

SECURITIES FINANCE ANDREW DYSON, INTERNATIONAL SECURITIES LENDING ASSOCIATION

One way ISLA minimises the impact of failures is by working with its member firms to develop best practice, which is a “big push this year”.

Dyson said: “It’s simply the way we do business with each other that is deemed to be the most efficient way of getting things done. We’re not a regulator, so cannot compel people to do things but what we can say to people is, if you do things this way, then you are probably doing it as well as you can.”

As the industry sees the adoption of best practice, “it will in itself begin to pay dividends to members, because they will see efficiencies come through, such as settlement rates improving”, he added.

Inevitably, sustainability is another area that “plenty more work” is needed in, both as an industry and with wider stakeholders, according to Dyson.

Dyson, who has been CEO at ISLA since June 2016, said: “We are finding a lack of clarity from the regulatory community around things like definitions. The idea of ESG ratings is now at the forefront of everybody’s thinking and we need regulators to help define that landscape. Without that, it is very hard to move forward, as you then get a myriad of different people with different views on things like ratings.”

To help change these perceptions, Dyson said, ISLA have been working with a UN mandated investment group that provides advice to people with common interests.

ISLA have also been working with Socially Responsible Investing (SRI) labels that cluster around investment communities in different countries. “For example, if you have a fund and you want to get it a gold star of acceptability from an ESG perspective, you’ll want to get one of their If people are going to make a decision about lending, then what is really important is they are making decisions based upon informed facts, which is what ISLA is all about.

certificates”, Dyson explained.

This year ISLA will be doing more work in the sustainability space not only with their members, and with the regulatory community, but also with such interest groups too, Dyson said.

“If people are going to make a decision about lending, then what is really important is they are making decisions based upon informed facts, which is what ISLA is all about.”

Furthermore, ISLA also recognises diversity and inclusivity going into 2022, which “plays out into areas such as how one views the workplace”.

ISLA, which has a workforce of 14, implemented flexible working before the pandemic.

Dyson noted the reason behind this was because it “recognises that there are a number of people in our group, who have other commitments they have to prioritise in their lives, whether it be elderly parents they’re caring for, or children at school”.

Therefore, if organisations want to “attract true talent, but also embrace true inclusivity you have to have that flexibility in place to support people through their individual journeys”, Dyson stated.

As well as “setting the conduct or the tone” around themes like diversity and inclusion, Dyson said, one aspect that is “changing and has changed over time is how ISLA has become a recognised place where people come from the industry to collaborate on important topics, such as the regulatory agenda”.

“The Securities Financing Transactions Regulation (SFTR) taught us that if you have to solve a very complex, and at times challenging cross market issues, you can only really do that through someone like ourselves, which has led to huge support from our members.” he added.

As well as the big regulatory agenda that ISLA has in store this year, Dyson said that the ISLA 29th Annual Securities Finance & Collateral Management Conference, taking place from 6-8th June at the Marriott Hotel in Vienna, is one he is looking forward to the most this year as the industry gradually returns to normality.

He said: “We have had 700+ people previously come together for our annual conference. Although we may not see the same amount in person this year, if we were to see half of that in person, combined with the addition of streaming this event to an online audience for the first time, it will be a massive step forward for the reengagement of the industry.”

ISLA also plans to host small regional events this year too.

Overall, despite the challenges in 2021, Dyson concluded: “As an association we always keep in mind to do the things our members want from us and that is reflected in our 2022 agenda. So, that idea of the association as a custodian of standards, whether they be best practice, digital, sustainability or master agreements, is the big theme for this year.”

The Securities Financing Transactions Regulation (SFTR) taught us that if you have to solve a very complex, and at times challenging cross market issues, you can only really do that through someone like ourselves, which has led to huge support from our members.