European Parliament passes SFTR
30 October 2015 Brussels
Image: Shutterstock
The European Parliament has agreed to adopt new transparency regulation for securities finance.
The Securities Financing Transactions Regulations (SFTR), which was proposed by the European Commission in 2014, aims to identify and quantify risks associated with so-called ‘shadow banking’ trades.
The regulation will have a wide reaching impact on the securities lending, repo and margin lending transactions through increased reporting and investor transparency and new collateral management conditions.
Its three main features include the introduction of mandatory reporting for all SFTs, excluding those concluded with central banks, to trade repositories.
Reporting requirements will be implemented at a regional level between 12 to 21 months after the SFTR comes into force.
Investment funds must also disclose information on the use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents.
This rules comes into immediate effect with the SFTR but existing funds will receive an 18-month grace period to amend their books.
Finally, the SFTR sets minimum transparency conditions on the reuse of collateral. Disclosure of risks and the need to grant prior consent are just some examples of what the new regulation entails.
The collateral management conditions will come into force six months after the launch of SFTR.
Due to these and other conditions, the SFTR has widely been cited by industry figures as one of the EU’s regulatory proposals most concerning securities finance this year.
The new rules come as part of a wider initiative by G20 leaders' to ensure more transparency on financial markets following the 2008 financial crash.
European commissioner Jonathan Hill, responsible for financial stability, financial services and capital markets union said: "Today's rules will increase transparency in securities financing markets.”
“They will allow market participants to use them for financing the economy, while making it easier to monitor and assess the risks involved.”
“This is another element in making our system more resilient in the wake of the financial crisis.”
“I am grateful to the European Parliament, and in particular rapporteur Renato Soru, for their hard work in reaching this agreement.”
Following the Parliament's vote, the EU Council will now adopt the regulation in the near future and it will be published in the Official Journal of the EU.
The Securities Financing Transactions Regulations (SFTR), which was proposed by the European Commission in 2014, aims to identify and quantify risks associated with so-called ‘shadow banking’ trades.
The regulation will have a wide reaching impact on the securities lending, repo and margin lending transactions through increased reporting and investor transparency and new collateral management conditions.
Its three main features include the introduction of mandatory reporting for all SFTs, excluding those concluded with central banks, to trade repositories.
Reporting requirements will be implemented at a regional level between 12 to 21 months after the SFTR comes into force.
Investment funds must also disclose information on the use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents.
This rules comes into immediate effect with the SFTR but existing funds will receive an 18-month grace period to amend their books.
Finally, the SFTR sets minimum transparency conditions on the reuse of collateral. Disclosure of risks and the need to grant prior consent are just some examples of what the new regulation entails.
The collateral management conditions will come into force six months after the launch of SFTR.
Due to these and other conditions, the SFTR has widely been cited by industry figures as one of the EU’s regulatory proposals most concerning securities finance this year.
The new rules come as part of a wider initiative by G20 leaders' to ensure more transparency on financial markets following the 2008 financial crash.
European commissioner Jonathan Hill, responsible for financial stability, financial services and capital markets union said: "Today's rules will increase transparency in securities financing markets.”
“They will allow market participants to use them for financing the economy, while making it easier to monitor and assess the risks involved.”
“This is another element in making our system more resilient in the wake of the financial crisis.”
“I am grateful to the European Parliament, and in particular rapporteur Renato Soru, for their hard work in reaching this agreement.”
Following the Parliament's vote, the EU Council will now adopt the regulation in the near future and it will be published in the Official Journal of the EU.
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