SFTR level II has been endorsed by European Commission
13 December 2018 Brussels
Image: Shutterstock
The European Commission has adopted the seven delegated regulations comprising the Securities Financing Transactions Regulation (SFTR) level II legislation with firms set to go live with SFTR reporting in Q2 2020.
The seven delegated regulation included, the RTS specifying the details of the application for registration as a trade repository; regulation on access to the data held in trade repositories; RTS specifying the details of securities financing transactions (SFTs) to be reported to trade repositories; regulation on fees charged by European Securities and Markets Authority (ESMA) to trade repositories; RTS on the collection, verification, aggregation, comparison and publication of data on SFTs by trade repositories; RTS on the details of the application for registration and extension of registration as a trade repository; and RTS on access to details of SFTs held in trade repositories.
Seb Malik of Market FinReg said: “After an inordinate one and a half-year delay the market can breathe a collective sigh of relief. The legislation will now be scrutinised by the European Parliament and council.”
According to Article 13(1) of ESMAs founding Regulation, “the European Parliament or the Council may object to a regulatory technical standard (RTS) within a period of three months from the date of notification of the RTS adopted by the commission. At the initiative of the European Parliament or the council that period shall be extended by three months”.
Andrew Dyson, CEO of the International Securities Lending Association, commented: “After considerable and detailed preparatory work across the industry in recent months it is good to get clarity around the dates we are all now working towards.”
Dyson exaggerates how important the first six months of 2019 will be “in terms of developing a consistent and pragmatic framework to ensure that the industry is able to comply with the Article 4 daily reporting requirements".
Jonathan Lee, senior regulatory reporting specialist at Kaizen Reporting describes the decision to adopt the RTS and the implementation technical standards (ITS) for SFTR as “the final piece in the puzzle of certainty around the Article 4 regulatory reporting obligation go-live”.
Lee explained that the decision “dictates the timeline to implementation”.
Once the regulation comes into force, credit institutions and investment firms have 12 months to implement reporting central counterparties (CCPs) and central securities depositories (CSDs) have 15 months, pension funds, insurance/reinsurance companies, alternative investment funds and UCITS have 18 months and non-financial counterparties have 21 months.
According to Lee, reporting will start in April 2020 for banks, with others to follow in three-month increments.
Lee said: “At present, the actual content of the RTS and ITS have only been released to a select few (it is not yet public) but we understand that few changes have been made from ESMA 31 March 2017 and European Commission July 2018 versions.”
He emphasised that “now is the time to start SFTR budgeting, hiring, planning, building and thinking about testing, controls and governance if your project has not already kicked off”.
Also commenting on the adoption, Val Wotton, managing director, product development and strategy, derivatives and collateral management at DTCC, said that “the approval of the technical standards for the reporting rules of SFTR fires the starting gun on the countdown to the implementation of this new regulation which we expect to take place in just over a year's time”.
Wotton suggested that in order to be ready in time, the securities financing industry has a “significant amount of work to do, particularly around data availability and workflows”.
He added: “We know that large broker-dealers and agent lenders have kicked off their preparations, however many of the smaller banks and buy-side firms have not yet initiated their response to the regulation and we would recommend that they begin these preparations as soon as possible."
"Further, as market participants start to prepare, we urge them to take a more strategic approach to address the SFTR requirements, rather than viewing them as a compliance exercise. In doing so, they will have an opportunity to gain wider advantages such as increased levels of pre-trade matching, reducing trade fails and creating greater collateral efficiencies, which will result in significant benefits such as balance sheet optimisation."
A statement from EquiLend and its SFTR partner Trax explained: "With the endorsement of the SFTR RTS, the road is now clear for scrutiny from the European Parliament, which will ultimately then lead to publication within the Official Journal of the EU. The SFTR clock has been counting down for a long time now; however, those ticks will certainly be getting louder and louder now. EquiLend and Trax are performing an analysis of the endorsed RTS and will provide updates shortly.”
The seven delegated regulation included, the RTS specifying the details of the application for registration as a trade repository; regulation on access to the data held in trade repositories; RTS specifying the details of securities financing transactions (SFTs) to be reported to trade repositories; regulation on fees charged by European Securities and Markets Authority (ESMA) to trade repositories; RTS on the collection, verification, aggregation, comparison and publication of data on SFTs by trade repositories; RTS on the details of the application for registration and extension of registration as a trade repository; and RTS on access to details of SFTs held in trade repositories.
Seb Malik of Market FinReg said: “After an inordinate one and a half-year delay the market can breathe a collective sigh of relief. The legislation will now be scrutinised by the European Parliament and council.”
According to Article 13(1) of ESMAs founding Regulation, “the European Parliament or the Council may object to a regulatory technical standard (RTS) within a period of three months from the date of notification of the RTS adopted by the commission. At the initiative of the European Parliament or the council that period shall be extended by three months”.
Andrew Dyson, CEO of the International Securities Lending Association, commented: “After considerable and detailed preparatory work across the industry in recent months it is good to get clarity around the dates we are all now working towards.”
Dyson exaggerates how important the first six months of 2019 will be “in terms of developing a consistent and pragmatic framework to ensure that the industry is able to comply with the Article 4 daily reporting requirements".
Jonathan Lee, senior regulatory reporting specialist at Kaizen Reporting describes the decision to adopt the RTS and the implementation technical standards (ITS) for SFTR as “the final piece in the puzzle of certainty around the Article 4 regulatory reporting obligation go-live”.
Lee explained that the decision “dictates the timeline to implementation”.
Once the regulation comes into force, credit institutions and investment firms have 12 months to implement reporting central counterparties (CCPs) and central securities depositories (CSDs) have 15 months, pension funds, insurance/reinsurance companies, alternative investment funds and UCITS have 18 months and non-financial counterparties have 21 months.
According to Lee, reporting will start in April 2020 for banks, with others to follow in three-month increments.
Lee said: “At present, the actual content of the RTS and ITS have only been released to a select few (it is not yet public) but we understand that few changes have been made from ESMA 31 March 2017 and European Commission July 2018 versions.”
He emphasised that “now is the time to start SFTR budgeting, hiring, planning, building and thinking about testing, controls and governance if your project has not already kicked off”.
Also commenting on the adoption, Val Wotton, managing director, product development and strategy, derivatives and collateral management at DTCC, said that “the approval of the technical standards for the reporting rules of SFTR fires the starting gun on the countdown to the implementation of this new regulation which we expect to take place in just over a year's time”.
Wotton suggested that in order to be ready in time, the securities financing industry has a “significant amount of work to do, particularly around data availability and workflows”.
He added: “We know that large broker-dealers and agent lenders have kicked off their preparations, however many of the smaller banks and buy-side firms have not yet initiated their response to the regulation and we would recommend that they begin these preparations as soon as possible."
"Further, as market participants start to prepare, we urge them to take a more strategic approach to address the SFTR requirements, rather than viewing them as a compliance exercise. In doing so, they will have an opportunity to gain wider advantages such as increased levels of pre-trade matching, reducing trade fails and creating greater collateral efficiencies, which will result in significant benefits such as balance sheet optimisation."
A statement from EquiLend and its SFTR partner Trax explained: "With the endorsement of the SFTR RTS, the road is now clear for scrutiny from the European Parliament, which will ultimately then lead to publication within the Official Journal of the EU. The SFTR clock has been counting down for a long time now; however, those ticks will certainly be getting louder and louder now. EquiLend and Trax are performing an analysis of the endorsed RTS and will provide updates shortly.”
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