Lenders being pushed away by regulations says ISLA

Further regulatory pressure may push institutional lenders away from the securities lending market according to a new report.

According to the report by ISLA the impact of regulatory regimes such as Securities Finance Transaction Reporting (SFTR), CSDR and further UCITS restrictions may lead some lenders to withdraw from the market rather than comply with new regulations.

This could potentially lead to a loss of market liquidity and make it more expensive for institutional investors to invest in equity markets.

Government institutions may also find it more difficult to manage current government bond programmes.

Also stated in the report, out of the €1.8 trillion of securities on loan globally, around 60% were loans that were collateralised with non-cash collateral.

The figures correspond with the levels of non-cash collateral recorded earlier this year but it did slow in the second half of the year.

Such a level of non-cash collateral is, according to the report, put down to regulatory regimes specifically EMIR and Basel III causing borrowers to rethink about different forms of collateral.

ISLA said that this shift is forcing borrowers to think about different forms of collateral particularly when they want to access and borrow HQLA assets.

As such there is set to be a higher demand for Government bonds particularly as regulations such as Basel III, EMIR and Dodd-Frank come into force.

“We therefore believe that it is increasingly important to recognise the crucial role that securities lending can play in unlocking these pools of HQLAs globally,” said the report.

“Therefore attendant regulation should wherever possible encourage their mobilisation.”