With the Securities Financing Transactions Regulation (SFTR) regulation now law and a year to go before reporting begins, the detail is starting to fall into place. At the end of March, European regulator, the European Securities and Markets Authority (ESMA) issued the definitive versions of the 155 fields that make up an SFT report, and ISO 20022 published the “candidate versions” of the XML message definitions—the formats for the SFT report fields—for final evaluation by the industry.
Testing time
Companies now have enough firm information to begin their testing in earnest. At REGIS-TR, we have built an early user acceptance testing (UAT) pre-test environment based on the latest ISO 20022 schemas and we have opened it to clients and other firms to start using now. It’s a small step, but vitally important—not only is ISO 20022 XML the only language for every aspect of SFTR reporting, but it seems likely that over time, it will become the only format for all trade and post-trade financial messaging, including the European Market Infrastructure Regulation (EMIR). It makes sense to get to grips with it as early as possible.
Pre-testing your XML is pretty straightforward. In the REGIS-TR system, you send your reports in files, each containing a single message. Upload the file in our UAT and our system sends it through the schema validation and immediately generates a response showing any errors in your XML. Our validation tool is an efficient and reliable way to iron out schema problems very early on and ensure XML compliance well before reporting starts for real.
Making ready
We will be adding features to our UAT environment over the course of this year, and this will give our existing and potential clients the chance to conduct progressively deeper testing as time moves on. Some elements, of course, will depend on ESMA. That said, we are fully aware of our clients’ most pressing concerns, and will be working with other trade repositories (TRs) to set up reconciliation testing as soon as this is practically feasible. Our overriding aim is for all our clients to be confident that their systems and processes are thoroughly tested and up and running well before their reporting start date.
The ISO messages
Meanwhile, REGIS-TR is fully involved in the finalisation of the ISO securities message definitions. We have several subject matter experts on the ISO 20022 Securities SEG evaluation team, which includes representatives from the securities industry, regulatory bodies, connectivity providers, solution vendors and trade repositories. Final registration of the messages is set for the end of July.
The exchange of messages in ISO 20022 breaks down into three groups: reporting firm/TR, TR/TR and TR/National Competent Authority (NCA). Three of the new messages—transaction, margin data and collateral reuse data reports—are for firms submitting SFTs to their TR. TRs will use up to six message types for communicating to reporting firms: three are transaction state messages (securities financing, margin data and collateral reuse); the other three are for reconciliation statuses, collateral information requests and status reports.
Planning notice
The evaluation team is currently reviewing the SFTR Report, which takes in all four SFT classes and eight action types. This message is larger by far than the other new schemas, and whether or not the team recommends any amendments, implementers would be well advised to start looking at it now. The sheer size of this schema may also require some planning for testing, both for the initial implementation and for any maintenance change in the future.
The same advice applies to the contextual and business validation rules—the reporting guidelines and technical standards—which will inevitably be more complex than those for, say, EMIR. Market consultation for these rules is set to begin this quarter, and the final definitions should be ready in Q3. Again, we would strongly advise firms to draw up their analysis, implementation and testing plans now on the basis of the draft rules. In the long run, it should be more efficient to get the bulk of it out of the way as early as possible and retest where necessary when the final rules are issued.
The data, the data
There has been a significant focus on the sheer effort involved in SFTR reporting, especially around sourcing and coordinating the inputs for 155 SFTR data fields, capturing lifecycle events and keeping track of matching and reconciliations. Legal entity identifier (LEI) and unique transaction identifiers (UTI) protocols are firming up but may mean a headache for some, especially where previous identifying codes are hardwired into systems. Also, there are practical problems such as how to ensure that every piece of allocated collateral has an issuer who maintains a valid LEI. On the upside, the massive upsurge in data volumes offers the obvious potential for firms to gain greater visibility into areas such as trading patterns and collateral usage.
Cutting out the legwork
Automation, collaboration and interoperability are fundamental to making the most of SFTR, and REGIS-TR is setting up a number of partnerships with vendors and infrastructure providers in response to significant demand from clients looking to reduce their reporting burden. REGIS-TR is proactively collaborating with IHS Markit and Pirum, EquiLend and Trax and a number of other industry partners on full end-to-end reporting solutions designed specifically for SFTR.
End-to-end SFTR reporting solutions offer several highly customisable options and combinations of options—direct, delegated and fully or partially vendor-assisted—for clients. Opting for one of these can go a long way towards cutting out the legwork. Enriching data en route, these systems can pre-match trades, generate the all-important UTI, pre-validated and reconcile the records, convert them into ISO 20022 and transmit them to REGIS-TR already matched. REGIS-TR validates and responds within an hour, giving time for firms to correct any errors and send the trade back to the TR for reconciliation well within the reporting deadline.
Calls and responses
At REGIS-TR, we are developing a state-of-the-art web user interface, which will amalgamate all client reporting into a single view no matter how it was reported, and provide low- and high-level dashboards, management information and reports for your compliance and control functions.
Equally important is the suite of features we are developing for our clients to create and save custom queries on the submitted SFT reports and the key performance indicators (KPIs), management reporting and statistics. This will provide detailed insight into aspects such as trade volumes by type of SFT and reconciliation rates, timings and breaks. In addition, we are introducing automated scheduling of the saved custom queries, enabling clients to set these up to run at defined times. We are also giving clients—once contracts and security are in place—the choice of securely adding and managing their own accounts and users. All our reports and user management features will be available through our new reporting dashboard, in addition to a choice of connectivity channels for both uploads and downloads.
Expertise is non-negotiable
The fact of the matter is, the SFTR reporting rules are exceptionally complex. If only for that reason, market participants should not simply throw their SFTR flows to their existing TR. Regulatory reporting is not just machine-to-machine straight-through processing (STP)—there is exception management to consider as well as the fluidity in the regulatory environment. SFTR is a specialised niche and the best partners and TRs to handle it will be those with expertise and appropriate service support.
And finally
Our new UK TR, REGIS-TR UK LTD, has been accepted under the Financial Conduct Authority’s (FCA) Temporary Registration Regime, put in place to enable EU TRs to offer continuity of service up to the point when the FCA begins to grant permanent registrations. We are fully live, operational and ready to provide UK EMIR services when and if Brexit takes place. For UK SFTR, we will apply for a licence as soon as the FCA opens the window for applications
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