UK FCA clarifies SFTR backloading start date following three-month delay
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UK FCA clarifies SFTR backloading start date following three-month delay 20 March 2020London Reporter: Drew Nicol
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The UK Financial Conduct Authority (FCA) will not require firms to back report any transactions that are concluded between 13 April and 13 July under the Securities Finance Transaction Regulation (SFTR).
The UK market regulator has today clarified its position following a day of confusion among securities finance market participants seeking to decipher how the European Securities and Markets Authority’s unofficial three-month delay of SFTR would affect requirements to backload in-scope transactions.
SFTR’s regulatory technical standards include a backloading requirement for trades that are live on the 11 April go-live date and are still be active 180 days after that date. These trades are to be reported roughly six months following go-live.
It is understood that trades opened before go-live but closed before the 180 days do not need to be reported.
However, following ESMA’s request for national competent authorities “not to prioritise their supervisory actions” towards entities in-scope for the first phase of SFTR until 13 July, questions were raised around whether this affected the start date for backloading.
In its statement, the FCA says that it will acquiesce to ESMA’s request to turn a blind eye to those who fail to meet the April compliance deadline and confirms that trades in-scope for backloading should be reported using 13 July as the application date.
The regulator adds that firms in scope of the first two application phase-in dates should continue to plan to meet their requirement to report securities financing transactions under SFTR and MiFIR from 13 July 2020.
The clarification by the FCA was crucial for market participants, many of whom took to social media during the period of uncertainty yesterday to note that a failure to also push back the key date to measure historic transactions by would create serious problems regarding the validity of the back loaded data set.
The International Securities Lending Association was among the first to welcome the FCA’s statement, having acknowledged that “some further clarification was required to crystallise that delay and ensure correct interpretation by industry participants”.
The association explains that its “optimistic interpretation” of ESMA’s statement the delay was that it combined phase one and two of SFTR, adding “we are pleased that the FCA has confirmed our understanding”.
Commenting on the delay and backloading concerns, Sunil Daswani, of Marketaxess tells SLT: “Any forbearance is good news to give people more time, however, the regulation was initially devised to allow regulators to better understand what goes on in markets, particularly during unprecedented times when increased volatility and market disruption may occur. It is at times like this that regulators are most concerned.
"Regulation is important in providing transparency and providing regulators with a clear view of what is happening and to identify where potential issues can be avoided. Therefore a delay is just that, whether now or in three months’ time the SFTR reporting will commence – we know regulations such as SFTR are here to stay and so it is important we continue to prepare for it and other such similar regulations.”
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