Coverage from the POA Winter Conference in Johannesburg
Proposed rules around how trustees treat the securities lending programme within their portfolios will provide a boost to the South African market, said Llewellyn Ford, head of securities lending and futures clearing at Standard Bank.
The updated version of Regulation 28, which governs pension funds’ investment practices, went into effect on 1 July, but details around securities lending won’t be incorporated until next year.
However, if draft guidelines are approved, they will provide more clarity for beneficial owners who are “still wary of securities lending”, Ford told attendees.
“We’ve seen regulation 28 coming out now and we welcome that. One of the benefits (of the draft regulation) is that beneficial owners need to look at their administration and their policy in terms of securities lending programmes.
“If they are outsourcing those programmes, they’re going to have to work with those agent lenders to develop a policy. How do trustees monitor that? How are those programmes audited, etc? That’s going to help us alleviate the fears around securities lending,” he said.
The draft regulation also emphasises the need for trustees to fully understand and be able to monitor any risk associated with the securities lending programmes.
The draft regulation also encourages more transparency around the identity of the underlying borrower.
“So if you have a beneficial owner, you need to disclose who the borrower is to them and vice-versa. A lot of us have been participating as principals because we don’t disclose the underlying borrowers,” said Ford.
He said Standard Bank is working with regulators to get a formal draft finalised.
The South African securities lending market has suffered since the start of the global financial crisis, but the drop in assets on loan has not been as severe as in other regions.
According to data by Standard Bank, securities on loan in South Africa currently total ZAR100bn ($14.5bn), down 37% from its 2007 levels of ZAR160bn. Globally – with the US, Europe and Asia serving as the main markets – assets total $2trn, down 63% from their 2007 levels of $5.5trn.
However, Ford expects to see growth in other developing nations.
“Obviously we’re seeing markets like Australia and Africa grow. We’re looking at expansion in some of the more developing markets, so Nigeria, Ghana, etc. So we’re looking at broader Africa growth,” he said.
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers