Systemic risk and investor protection are driving regulatory changes in securities lending, in rules ranging from Dodd-Frank and the Volcker rule to Basel III and other international regulators, Bruce McDougal, BlackRock director, regulatory strategies, security lending, told a securities lending conference Monday.
Such changes are intended to protect the financial system as well as the investor, Mr. McDougal said in a regulatory update at the Information Management Network Beneficial Owners' International Securities Lending Conference in Austin, Texas.
Shadow banking is the focal point of systemic risk rules, while investor protection rules are centered on increasing transparency and disclosure, he said. Shadow banking issues include leverage and credit ratio limits and collateral requirements, while transparency issues include enhanced disclosure from parties like broker dealers.
Among the regulations affecting securities lending, only the Volcker rule, which bars banks from using proprietary money to invest in hedge funds, has been finalized. Others, like Workstream 5, which was requested by the Group of 20 nations to study shadow banking concerns, and Dodd-Frank Section 165 lending limits, are awaiting comments or still being worked on.
