On November 18, 2015, the Financial Stability Board (FSB) published its final Standards and Processes for Global Securities Financing Data Collection and Aggregation. The final standards are based on the FSB’s previous November 2014 consultation paper and define the data elements for securities lending, repo, and margin lending that national and regional authorities will be asked to report in aggregate to the FSB.
The standards build on the November 2014 consultation paper, including public comments, as well the policy recommendations from the FSB’s August 2013 report Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos, in particular its recommendations to improve transparency of securities financing markets. The Report sets out standards and processes to allow the FSB periodically to collect aggregated data on securities financing transactions from national and regional authorities. Among other things the final reports defines the data elements for repos, securities lending and margin lending that national and regional authorities will be asked to report on as aggregates to the FSB, the purpose of which is to allow for consistency among national/regional data and to make it possible to derive meaningful global aggregates. Additionally, the Report describes data architecture issues related to the data collection and transmission from the reporting entity to the national/regional authority and then from the national/regional level to the global level.
Among other things, the report sets out six recommendations to ensure the consistency and usefulness of the data collected by authorities:
- National/regional data standards should be consistent with the data elements, granularity level and definitions provided in the published final standards;
- Jurisdictions should design their local requirements with a minimum monthly reporting period and frequency;
- To allow for international comparability and consistent aggregation, the reporting population at the national/regional level should be as comprehensive as possible;
- National/regional authorities should define an appropriate reporting scope that would not hamper the global comparability and aggregation of data;
- Before reporting to the FSB, authorities are asked to correct national/regional aggregated data for double-counting;
- The use of internationally agreed standard identifiers at the national/regional level reduces the reporting burden and improves the consistency of aggregates at the global level.
FSB Reactions to Certain Comments
While the final standards were informed by various industry comments, some suggested changes did not make it into the final document.
For example, ISA, RMA, and PASLA disagreed in their comments with the FSB’s proposed collection of rate/price information stating that they were “unconvinced that rate/price information provides any additional insights that would be useful for macro prudential analysis as the FSB identified in its report of 29 August 2013.” In the final standards, FSB chose to retain rate/price data collection as part of the framework. In addition, ISA, RMA, and PASLA stressed the proprietary nature of rate/price data and suggested that data collection by regional/local regulatory authorities have appropriate safeguards built into the process. While the FSB did address confidentiality of data at each the two reporting tiers in the final document, they did not address rate/price data confidentiality specifically, choosing to leave the onus of making confidentiality determinations to national/regional authorities.
ICI Global was also concerned in their comments with confidentiality of collected data, and recommended confidentiality measures beyond the flagging system proposed by the FSB.
"Some of the data that the FSB expects national or regional authorities to collect may be sensitive and potentially commercially actionable. As a threshold matter, the FSB should recommend that every national or regional authority to have appropriate systems and procedures in place to ensure the confidentiality and security of such information before requesting it from market participants. Appropriate systems and procedures, in this regard, go far beyond assigned confidentiality flags. Even though the FSB will deal solely with aggregated data, it too should have robust systems and procedures in place before collecting data from national or regional regulators. "
Nonetheless, the FSB chose to stick with its confidentiality flag-based system in the final standards.
CSFME asserted in its comments that the data collection was too narrow, and that the Consultation Paper's focus on global aggregates limited to position metrics "will have minimal value, and may well prove to be misleading." While position aggregates in securities lending may help track the level of cash collateralized loans, CSFME argued that these metrics alone cannot track the risk of collateral fire sales, one of the main systemic risks that supervisors have linked to securities finance. Rather, CSFME proposed that the data initiative be expanded beyond position aggregates to include risk mitigation resources as well as termination activity. According to CSFME, to have a true understanding of the risk associated with collateral fire sales, loan recalls and returns must be tracked along with position aggregates. In addition, because lending agents can mitigate these termination risks with rebate incentives, cash buffers and loan substitutions, these mitigation techniques and practices must be considered as well. Ultimately, in the final draft, the FSB chose not to add risk mitigation resources and termination activity to the data collection.
The report also discusses the potential uses of the aggregated data, as well as the next steps for the completion of the initiative, including a timeline for the implementation of the standards and processes.
The FSB has indicated that it will begin work immediately on the detailed operational arrangements, and plans on initiating the official global data collection and aggregation at the end of 2018.