The International Securities Lending Association (ISLA) has laid out an ambitious action plan for 2021 including a focus on developing environmental, social and governance (ESG) best practices, the further development of the common domain model (CDM) and the digital clause library for the global master securities lending agreement (GMSLA), among several other projects.
However, the membership fee hike for 2021 to fund these initiatives has raised concerns that smaller market participants, including buy-side members that are most in need of support, may be excluded.
ISLA contacted members in November 2020 to outline its aspirations for the year ahead and explain how the increasing demands on its resources had coincided with the loss of revenue from its primary European industry event.
As a result, the association told members, it was necessary to increase its membership fees across the board “in order to support the day to day running of the association”.
The not-for-profit association uses a tiered approach to fees for its 176-strong member base that places the majority of the financial burden on the larger agent lenders, broker dealers and principal borrowers. This scales down to the lowest rung which is reserved for buy-side members.
ISLA’s 15 buy-side members were charged £750 for an annual membership in 2020. For 2021 fees are £1,500. Comparatively, tier-one members were charged £20,000 for the year.
When asked about the increase, ISLA told SFT that, as of this year, new beneficial owners joining the association will benefit from a 50 per cent discount for their first year of membership, meaning they will be charged £750.
The new first-year discount is understood to be available indefinitely, subject to review by the subcommittee.
Membership costs for vendors and law firms, typically categorised as associate members, are also understood to have increased by several thousand pounds each.
Additionally, fees for access to ISLA’s legal opinions, which were updated last year, increased to £20,000 for tier-one members and £15,000 for members and associates.
Previously, membership fees only increased by a few hundred pounds at a time, which last occurred in 2018.
Responding to industry concerns around the higher-than-normal fee increase, ISLA CEO Andrew Dyson notes that the scale of the challenge posed by the digital agenda and CDM projects are more far-reaching than in previous years and the payoff will be slower but more meaningful. He adds that the eventual cost savings from the improved market efficiency that the modernisation initiatives will bring could more than offset ISLA’s fees.
Dyson acknowledges that the annual fee increase is more than that seen in previous years but notes that ISLA’s agenda is driven by members, while the fees are decided by a subcommittee of the board, which includes members from banks, broker-dealers and beneficial owners from a diverse geographical area.
However, market observers warn that a persistent lack of buy-side voices in working groups, roundtable discussions and on panels throughout the industry will lead to a situation where the needs of beneficial owners are interpreted by agents and vendors and then dictated back to their clients without a meaningful dialogue.
As new, global trends such as ESG continue to develop, market participants are emphasising the need for trade bodies and other entities to foster a broad-church approach when developing universally viable solutions.
The securities lending industry has always struggled with gaining active engagement from beneficial owners who often see their lending programmes as second-order activities that may only be reviewed closely a few times a year when analysing their agent’s performance against the market average.
As modern technology makes opening a lending programme more appealing to smaller pension funds and asset managers than would previously be viable, it is important not to risk putting off those newcomers with even modest barriers to entry, a source who did not wish to be named tells SFT.
Meanwhile, Dyson says: “I would encourage any buy-side member thinking of joining us to do it for a year and let us prove our value”, adding that as a member, firms have a chance to proactively shape the industry through its working groups in key growth areas.
He affirms that the value proposition for buy-side members is still significant even with the increase, especially this year given that a large amount of the work planned, such as around ESG, will directly benefit beneficial owners more than any other.
According to Dyson, the increase also reflects the fact that ISLA was unable to draw revenues from its flagship industry event in 2020. He has also not budgeted to receive earnings from a physical event this year either, given the ongoing challenges of the COVID-19 pandemic.
Dyson emphasises that revenues from events are not integral to ISLA’s financial stability and all profits are reinvested into the association.
As well as new initiatives, Dyson explains that on-going issues such as monitoring the Securities Financing Transactions Regulation, along with other incoming EU regulations and the new post-Brexit market environment will all require resources to effectively navigate and add value to members.
Elsewhere, ISLA has also recently brought-on David Shone as a full-time director of market infrastructure and technology.
Shone joined ISLA as a contract consultant in 2020 with responsibility for the ongoing development of the CDM, production of a clause library and taxonomy for the GMSLA and the ongoing digital transformation of the market.
Other than replacing existing roles, ISLA is not expected to significantly expand its headcount this year and aims to work more efficiently with its full time and member resources.
