There are now just weeks to go until reporting under the Securities Financing Transactions Regulation (SFTR) becomes mandatory for many of the firms that fall under its scope. SFTR has been introduced by the EU as part of a range of regulatory measures intended to improve the transparency of its financial markets and increase investor confidence.
Under the regulation, EU counterparties taking part in securities financing transactions will be required to report these transactions to a trade repository registered with the European Securities and Markets Authority (ESMA) on the day of the transaction. Transactions covered by the regulation include securities lending, repurchase agreements, liquidity and collateral swaps and repurchase agreements. The scale of the proposed transaction reporting requirements is considerable and will amount to up to 155 separate data fields for every transaction (the exact number will depend on the type of trade).
The deadline for compliance depends on your status under the regulation. MiFID investment firms and credit institutions must be ready to report from April 11. Other Financial Counterparties (FCs) including insurers, reinsurers, alternative investment funds, pension fund and UCITS funds have until October 2 to ready themselves. Finally, non-financial counterparty (NFC) do not need to comply with the regulation until January 4, 2021. Recently, ESMA cleared up one area of uncertainty around the regulation, confirming that non-EU AIFs will not be subject to the SFTR reporting obligation. The only exception is where non-EU AIFs conclude SFTs through an EU branch.
COVID-19 has had an impact on deadlines and ESMA released updates to changes on a regular basis. You can view the latest information here.
SFTR shares a number of similarities with another landmark EU regulation: the European Market Infrastructure Regulation (EMIR), including the structure of the overall reporting framework. For firms that are already reporting under EMIR, either directly through connections to trade repositories, or through agreements with counterparties, the similarities between the regulations mean it should be possible to extend existing reporting capabilities to cover SFTR requirements.
For SFTR, as with EMIR, the challenge facing firms is to find a reliable and scalable way to complete timely and accurate reconciliations. This is a complex task as a great deal of the transaction data needed for accurate reporting is spread across multiple systems. Indeed, in some cases companies do not currently capture all the data that will be required.
For firms that delegate reporting responsibilities to counterparties, it’s important to understand their approach to reconciliation. This is because ultimate responsibility for compliant and accurate reporting cannot be delegated. If your counterparty has flaws in its systems, it’s your business that might bear the regulatory cost.
The clock is ticking for all organisations that are within scope of SFTR. The time has come for firms to plan their reporting method and ensure they have in place adequate reconciliation technologies, or processes for reviewing those of counterparties.
The good news is that by leveraging the expertise of fintech providers, firms can quickly embed the capabilities they need. The Fund Recs Velocity platform offers one such option, automating the reconciliation and reporting process for firms and immediately highlighting exceptions so firms can take remedial action before they become a problem.
To discuss the Fund Recs SFTR offering, or if you would like a demo, please contact Ciaran Walshe at email@example.com.
Fund Recs develops cloud reconciliation software for the funds industry. We'll be sharing our experiences and thoughts on our blog as we build our company.