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ISLA MANIFESTO 2024
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Introduction Context for Change

There is widespread political and industry consensus that stronger, deeper and more integrated European capital European Capital Markets Remain Under Developed
markets are needed to address the many diverse and significant funding challenges that Europe faces. The
1
International Securities Lending Association (ISLA) is delighted to share its views and recommendations on how its Nearly a decade has passed since the European Commission introduced its CMU Action Plan. Despite
members and the market it represents, can support European Union (EU) policy makers and regulators in achieving extensive legislative efforts and significant strides in enhancing efficiency and integration within primary and
this objective. As an organisation, representing the majority of securities lending and borrowing (SLB) activity in secondary markets, progress towards the objectives of the CMU has been slow:
Europe, and with over 40% of our members based in the EU, we are committed to ensuring our sector contributes
to a successful and vibrant European economy.
Europe’s reliance on EU capital markets remain
Building more liquid EU capital markets is crucial to support the flow of private investments needed to address the
funding challenges; this requires unlocking the substantial liquidity available among institutional investors. SLB is bank versus capital a fraction of the size of US
one of the core channels that can deliver exactly that, as one of the most efficient mechanisms to facilitate the flow market funding remains capital markets, with EU
of securities between supply and demand.
reasonably unchanged financial services continuing
What this calls for is greater political focus and a European strategy to prioritise safeguarding and empowering in the last decade (at circa to lose market share in
core funding market channels such as SLB, to ensure securities can be mobilised quickly, and in sufficient quality
and quantity. There is however, significant untapped potential of securities supply held in portfolios of EU-based 75% vs 25% respectively). the past fifteen years.
lenders such as Undertakings for Collective Investment in Transferable Securities (UCITS), pension funds and This is despite the notable For example, among the
insurance companies. If fully mobilised, it can be a key tool to unlock capital, enhance market liquidity, and support shift of investment, credit largest 100 asset managers
investment across the EU – the foundations for competitive capital markets.
and funding activities globally, the share of funds
The strategy should focus on the following four key themes: from banks to non-banks. from Europe has dropped to
21.9% in 2022 from 47.1%

• Securing and expanding supply-side channels in 2007. 2
• Optimising and enhancing demand-side channels
• Advancing EU infrastructure to further drive forward market efficiency and digitisation
• Improving the financial stability data reporting framework for SLB to ensure market resiliency
Meanwhile, Europe’s Funding Needs Have Grown Exponentially

Implementing this strategy will help the Capital Markets Union’s (CMU’s) long-term goals to balance In less than six years, Europe has faced three major ‘before and after’ events namely, Brexit, the COVID-19
competitiveness versus stability, enhance liquidity and efficiency, and create a deeper, more attractive destination pandemic, and the conflict in Ukraine. These have tested the resilience of EU markets and in some cases,
for international investors, amidst a challenging environment. required significant injections of public money. Looking ahead, Europe is now confronted with how to mobilise
significant amounts of investment to support the green and digital transition of its economy, and to do so at
After providing the context and a short description of what SLB is, including the benefits that it brings to well- a time of fiscal repair. In tandem, an ageing EU population and the need for Europe to increase its defence
functioning markets, this paper provides a number of recommendations for EU policy makers and regulators to capabilities, are adding to the immense funding pressures. 3
consider, as they look for effective measures in which to enable this strategy.

For a summarised version including an overview of ISLA’s recommendations please click here.

2 https://www.luxembourgforfinance.com/en/publication-mag/competitiveness-of-european-financial-services-2024/#:~:text=Among%20
the%20largest%20100%20asset,any%20region%20globally%20in%202007. According to the Eurogroup Statement (11 March 2024)
1 According to the Eurogroup Statement (11 March 2024): “to match the substantial financial needs of the future, market-based funding 3 Q&A on the European Commission’s 2023 Foresight Report: “Overall, additional investments of about EUR 620 billion annually will be
opportunities must urgently become more widely and readily available in Europe”; also Enrico Letta’s report on the EU Single Market: “While needed to meet the objectives of the Green Deal and of our REPowerEU plan, with an additional EUR 92 billion needed to address the
the EU has boldly set forth an array of ambitious goals, a critical challenge remains unresolved: the funding of these aspirations.”(p.26) objectives of the Net-Zero Industry Act over the 2023-2030 period”;