The Securities Financing Transactions Regulation (SFTR) is part of the EU implementation to enhance the transparency of the securities financing markets (FSB’s “Strengthening Oversight and Regulation of Shadow Banking”) and the financial system in general. The regulation requires financial and nonfinancial counterparties to report their Securities Financing Transactions (SFTs) to authorized SFTR Trade Repositories (TR) for direct and immediate data access to National Competent Authorities (NCA). Similar to EMIR, the transaction details need to be reported no later than the following working day.
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SFTR reporting structure is akin to EMIR in several areas, specifically: each counterparty to the transaction has a reporting obligation to approved TRs; the European Securities and Markets Authorities (ESMA) applies registration requirements for TRs; and the establishment for NCA access to data.
The EU regulation has three key requirements – reporting, transparency, and reuse of collateral:
Reporting. SFTR defines reportable transactions:
Transparency towards investor.
SFTR includes disclosure requirements by UCITS funds and AIFMs on their use of SFTs and certain total return swaps in their prospectuses and periodic reports.
Reuse of collateral.
Transparency conditions in relation to the reuse of collateral, such as prior risk disclosure to counterparties and obtaining written consent prior to the hypothecation or reuse of assets.
SFTR key dates:
On 19 March, ESMA issued a statement that in effect delayed the start of the SFTR reporting obligations on credit institutions and investment firms until 13 July. The statement was updated on 26 March to provide additional clarity.
Phased go-live process for firms’ new trade reporting obligations:
Getting ready for implementation
Now is the time to find and put into process an efficient operating model to manage the new requirements. Firms must identify in-scope entities for reporting obligations and consider:
Alignment of data through proactive reconciliation against the counterparties and the trade repositories