What is your perception of overall market participant readiness for SFTR?
It’s difficult to discuss all market participants as if they are a homogenous group. We have been replying to request for proposals from all of the tier-one banks for well over a year already but this is obviously not reflected through all tier two and tier three participants who do not have the same level of resources available and have to juggle implementation of the Securities Financing Transactions Regulation (SFTR) with other key projects. Also, the phased nature of SFTR implementation means that different reporting start dates apply determined by your counterparty classification, i.e. what sort of financial entity you are.
As the first phase reporting start date draws nearer, we are now seeing a healthy acceleration of account opening requests.
You have been in this role since before EMIR went live in February 2014, are you seeing any similar trends?
The market is in a similar, potentially worse, situation than when the European Market Infrastructure Regulation (EMIR) went live. REGIS-TR was one of the first trade repositories to be authorised by the European Securities and Markets Authority (ESMA) in November 2013. Market participants considered that this was a very short window to select their TR before the reporting start date. Other TRs were authorised even later. For SFTR, given the current date, TRs will evidently be authorised much closer to the reporting start date, primarily because ESMA introduced stricter criteria in terms of system readiness and testing and, as a consequence of the well-documented delays with the technical specifications from ESMA themselves, this has really shortened the window.
That said, REGIS-TR has now been in operation for more than six years as one of the leading TRs in Europe and has processed nearly 20 billion individual EMIR trade messages. Processes, procedures and product evolution has matured over this time. As the majority of our SFTR participants already use us for EMIR, it is far less of a leap of faith for them in appointing us as their preferred provider. Also, as a proven existing EMIR TR, the application process to ESMA is actually streamlined and, in terms of documentation requirements, less onerous.
And how does the current situation compare in terms of the account opening process to EMIR?
With EMIR, we received somewhere in the region of 80 percent of the total account opening requests in the two weeks before reporting start date. Feedback from the other EMIR TRs also reflects this. This created a big challenge in ensuring everyone was set up in time, with the necessary credentials, to start complying with the regulation on day one.
As executive responsible for business development and sales, I am not going to complain if we receive a deluge of last-minute requests for SFTR. Nevertheless, planning and testing is key to mitigating potential operational issues once participants are sending through live data in production.
What sort of questions are you receiving from market participants right now?
We continue to receive a lot of requests from smaller market participants looking for our interpretation of the regulatory text itself. We have to be careful with this as we cannot offer legal advice in this regard as it’s incumbent on the participant themselves to seek their own legal counsel. That said, we try to help where it is appropriate, and one of our core strengths over the years has been service support. What this demonstrates, though, is that – even given the likely applicability of a later phase reporting start date for these types of participants – many are still in the initial stages of planning and analysis, given that questions of this nature would normally arise during the early stages of any SFTR project. We are also receiving a lot of questions surrounding delegation.
Do you believe that delegation will be a common model for market participants?
Yes, definitely, and in lots of different flavours. For example, some participants will delegate intra-day lending activity whilst reporting repo and other activity directly. Others will opt for ‘assisted’ reporting where they themselves maintain the direct account with the TR for all activity. And others will delegate everything to their custodian, lending agent or technology provider.
The questions we are receiving in this regard are normally around how best to oversee the activity and comply with national competent authority (NCA) expectations that any participant who delegates still has a robust oversight process in place to monitor their activity. Actually, it’s quite simple, depending on their requirements, participants can fully delegate and still operate their own account (and maintain a direct relationship) with us. Or, they have the option of a low-cost, read-only non-reporting entity account which can facilitate this.
I am inclined to think that some of the delay in account opening requests is due to some market participants not fully appreciating that – even with full delegation – they still retain legal responsibility for the accuracy of their data and need (and need to be able to demonstrate) a proper process in place to manage this. This is a fundamental aspect of their operational readiness.
If I am a market participant and I was not aware that I need an account with a TR, what can I do?
Stay calm, even if you are in phase one. Contact us without delay, one of our experts can walk you through the various account models and the necessary documentation to become a participant. If time is really tight, we can pre-review soft copies of your account opening documentation to ensure everything is in order before you formally submit.
If you weren’t aware of the need to have a TR account, it’s possible that you are using an intermediary. That’s good news! All of the leading intermediaries are already testing with us (on your behalf). The non-reporting entity account opening process is streamlined and easy to set up. If your data is being submitted from day one, perhaps your NCAs will grant you some grace for setting up your oversight process? Nevertheless, as we did before with EMIR, we will ensure that all of our participants receive the support they need to be compliant from day one.
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