No further SFT regulations on the horizon, says European Commission
20 October 2017 Paris
Image: Shutterstock
To a large extent, the Financial Stability Board’s (FSB) recommendations on securities financing transactions (SFTs) have been addressed through the adoption of the Securities Financing Transactions Regulation (SFTR), according to the European Commission.
The European Commission said that Financial Stability Board recommendations on SFTs meets all apparent requirements for success because of the introduction of SFTR.
It stated: “there does not seem to be a need for further regulatory action at this stage.”
The FSB previously highlighted several recommendations for the commission to pursue in order to improve transparency and market stability with SFTs, such as monitoring cash collateral reinvestment.
In a report reviewing the success of SFTR, the European Commission, stated that non-bank entities should implement regulatory regimes in their jurisdictions which meet FSB minimum standards for cash collateral reinvestment to limit their liquidity risks.
Another recommendation related to collateral valuation and management, stated SFT counterparties receiving collateral should only take collateral types that they are able to hold for a period without breaching laws or regulations, if they follow a counterparty failure.
On haircuts, the commission stated: “The quality standards of haircuts will be calculated once the SFTR reporting obligation becomes effective.”
“The current market dynamics reinforce the need for a certain degree of caution and robust evidence when reflecting on regulatory action implying quantitative requirements. No other region has taken a decision on regulatory action on haircut floors at this stage.”
The commission has committed “thoroughly monitor developments in SFT markets and the international regulatory space” and will reassess the added value of qualitative standards and haircut floors once comprehensive SFT data is available.
The European Commission said that Financial Stability Board recommendations on SFTs meets all apparent requirements for success because of the introduction of SFTR.
It stated: “there does not seem to be a need for further regulatory action at this stage.”
The FSB previously highlighted several recommendations for the commission to pursue in order to improve transparency and market stability with SFTs, such as monitoring cash collateral reinvestment.
In a report reviewing the success of SFTR, the European Commission, stated that non-bank entities should implement regulatory regimes in their jurisdictions which meet FSB minimum standards for cash collateral reinvestment to limit their liquidity risks.
Another recommendation related to collateral valuation and management, stated SFT counterparties receiving collateral should only take collateral types that they are able to hold for a period without breaching laws or regulations, if they follow a counterparty failure.
On haircuts, the commission stated: “The quality standards of haircuts will be calculated once the SFTR reporting obligation becomes effective.”
“The current market dynamics reinforce the need for a certain degree of caution and robust evidence when reflecting on regulatory action implying quantitative requirements. No other region has taken a decision on regulatory action on haircut floors at this stage.”
The commission has committed “thoroughly monitor developments in SFT markets and the international regulatory space” and will reassess the added value of qualitative standards and haircut floors once comprehensive SFT data is available.
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