Securities Financing Transaction Regulation (SFTR)
Securities Financing Transactions (SFTs) provide the opportunity to market participants to access secured funding through the temporary exchange of their collateralised assets as a guarantee. Lending or borrowing securities and commodities, repurchase (repo) or reverse repurchase transactions (reverse repo) and buy-sell back or sell-buy back transactions, including collateral and liquidity swaps, are some typical examples of SFTs. Financial mediators take advantage of SFTs in order to make markets and facilitate the implementation of various investment and risk management strategies. SFTs also form an integral part of the monetary policy operations of European central banks.
In an attempt to enhance the transparency of securities financing markets and thus of the financial system, the European Union published in its Official Journal the Securities Financing Transaction Regulation (SFTR), which came into force on 12 January 2016.
The SFTR introduces, among others: a) a trade reporting obligation in respect of securities financing transactions; b) an obligation to make prescribed pre-contractual disclosures to UCITS and AIF investors in respect of securities financing transactions and total return swaps in the UCITS/AIF prospectus and annual return, and; c) provisions for minimum transparency requirements relating to the “re-use” of collateral (financial instruments only) under financial collateral agreements.
The SFTR requires both financial and non-financial market participants to report details of their SFTs to an approved EU Trade Repository (TR). ESMA has developed its reporting standards for SFTs building on its experience with the European Market Infrastructure Regulation (EMIR), and other EU-wide reporting regimes in order to align reporting standards to the maximum extent possible.
SFTR may affect banks, investment firms, Central Counterparties (CCPs), Central Securities Depositories (CSDs), insurance, reinsurance undertakings, pension funds, UCITs, AIFs and non-financial counterparties.
The reporting start dates are as follows:
- 11 April 2020: Reporting for Credit Institutions and Investment Firms
- 11 July 2020: Reporting CCPs & CSDs
- 11 October 2020: Reporting for the buy-side (other Financial Counterparties)
- 11 January 2021: Reporting for non-Financial Counterparties (NFCs)
Our team is composed of highly trained people, who have extensive experience helping and advising a variety of firms on how to deal with complex and demanding European legislation. Our services include:
- Regulatory analysis of impact on your business;
- Classify the financial instruments you trade;
- Determine obligations that apply to you;
- Example of reporting: start analysis of entire portfolio to determine which transactions need to be reported and by when;
- Develop an action plan for compliance;
- Adapt current operating model;
- Set feasible deadlines;
- Manage changes required by SFTR, and;
- Through our affiliated regulatory reporting technology provider, MAP FinTech, we can assist you automate reporting as well as report SFTs to licensed trade repositories.