Date: 10th June 2022

In 2021, the total income generated by securities lending operations globally stood at €7.8 billion, up by 21% compared to 2020. The majority of operations and lenders are outside the EU, and around 88% of securities on loan were sovereign bonds and equities.

In the EU, lenders cannot derive any profit from securities lending. All income, net of direct and indirect operational costs, must be returned to the beneficial owners. However, many asset managers distribute a large portion of revenues to affiliated parties, as agent fees, or to themselves, as other operational costs.

Regarding conflicts of interests, MiFID II obliges investment services providers to respect a general duty of care and attempt to prevent or manage conflicts of interests; if the latter is not possible, such risk should be properly disclosed to investors.

BETTER FINANCE stresses that all income earned from lending funds’ securities must be attributed in full to the funds, less the costs necessary to undertake such operations, as required by EU rules. Our own research in this field has revealed vastly differing “shares of the pie” returned to the beneficial owners of the funds, reason for which we have questioned whether certain fund management companies comply with the applicable law.

The first iteration of this report – published in May 2019 – showed the diverging shares of income attributed to the actors involved (fund, fund management company, agents -either related or third parties) and offered a right to reply to the management companies concerned.

This second iteration expands the analysis, from a quantitative and qualitative point of view, to better map out practices in this field and properly assess the situation in practice. We hope that, following this report, supervisory authorities and regulators will pay more attention to these operations and take action, if necessary.