The Securities Financing Transactions Regulation (SFTR) is a reporting regime that requires important market preparations, and “if you have not started preparations, you should not delay, now is the time to get ready”, according to Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), speaking at the International Securities Lending Association conference in Madrid.
In his keynote speech, Maijoor urged the industry to respond to the SFTR guidelines released by ESMA at the end of May. He said that the SFTR guidelines were published after the “positive experience” when publishing guidelines for the Markets in Financial Instruments Directive.
He also encouraged industry members to attend the open hearing held by ESMA on 15 July to discuss the SFTR guidelines. Maijoor explained the importance of the input from the industry because like previous consultations, ESMA considers adjustments in response to feedback from stakeholders.
When describing SFTR, Maijoor explained that the implementation of SFTR in the EU is “one of the final pieces in the post-crisis efforts by global regulatory authorities to be what used to be known as shadow banking activities into the light and transform these activities resilient market-based finance”.
Maijoor noted that SFTR is also “the most far-reaching and encompassing legislation” in terms of types of SFTs and counterparties of all the global jurisdictions contributing to the Financial Stability Board’s data collection.
He said that based on ESMA’s data strategy and all the experience gathered in recent years, “reporting frameworks such EMIR and MiFIR will mould the SFTR data around four major data building blocks, which include counterparty, loans and collateral, margin and re-use data”.
When it comes to future SFTR data, Maijoor said there are “high expectations that this will allow authorities to gain greater insight into SFT markets”.
Maijoor said: “In addition to financial stability monitoring, central banks will be able to rely on it to inform their monetary policy decisions. Prudential supervisors will more easily oversee the risks entailed by the liquidity and maturity transformation that can result from SFTs.”
“Regulators will also use the reported information to calibrate future potential regulatory requirements, such as the implementation of the FSB haircut floors on non-centrally cleared SFTs.”
He added: “Moreover, authorities will be able to closely assess the build-up of leverage and interconnectedness in the financial system, as well as monitor the close links between interest rate swaps and repos.
SFTR will also shed light on the reuse of securities and the reinvestment of cash collateral made by market participants and will enable authorities to better monitor the so-called collateral velocity, according to Maijoor.
He concluded: “As I hope I have made clear, large amounts of data now sit within securities markets regulators. Unfortunately, the development of analytical capabilities has lagged, mainly due to the limited resources available at both EU and national level. This has hampered a more widespread reliance on quantitative information, which has not been exploited so far to its fullest extent.”
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