Investment banks ‘overconfident’ on SFTR compliance
10 June 2019 London
Image: Shutterstock
Tier one, tier two and tier three investment banks are ‘overconfident’ about the Securities Financing Transactions Regulation (SFTR) implementation, according to a new Regulatory Outlook Report from Luxoft.
The Luxoft report indicated almost all (99 percent) of senior compliance professionals responsible for implementing the regulation are confident they will meet the requirements, yet Luxoft’s Regulatory Outlook Report shows that this confidence may be misplaced.
The report highlighted some 98 percent of tier one, tier two and tier three investment banks will be relying on systems and process infrastructure used for past regulations such as the European Market Infrastructure Regulation (EMIR) to comply.
But Geoff Hutton, Europe, Middle East and Africa, regulatory specialist at Luxoft, warned: “Some of the groundwork from these [past] regulations will help firms to comply, however, SFTR presents a completely different set of challenges.”
He added: “Capturing the data required and putting in place the processes and technology to report efficiently will be a huge and costly challenge which firms are not prepared for.”
Though, almost three quarters (72 percent) of those asked agreed that SFTR implementation will be more costly than EMIR or the second Markets in Financial Instruments Directive (MIFID II), with 30 percent stating the cost of hiring new talent will be the most expensive aspect.
However, fewer than half (48 percent) of respondents said they have conducted a cost benefit analysis of the regulations or set up a planning committee (46 percent), centralised their SFT reporting (39 percent) or hired a trade repository (TR) (26 percent).
Some 74 percent of those asked said they acknowledged SFTR compliance will require a much more complex IT infrastructure than EMIR or MIFID II, while only 40 percent of senior compliance professionals reported ‘regulatory fatigue’ at their firm.
Elsewhere, 78 percent of firms stated they recognised that investment in compliance for regulatory initiatives such as SFTR makes their market position stronger and more resistant to new entrants.
Hutton said: “SFTR is the most demanding piece of transaction reporting regulation the sector has seen, and firms seem overconfident on delivering on the requirements when there is a vast amount of work to be done, with very little time to spare.”
He concluded: “With the 2020 deadline fast approaching, banks should start establishing SFT activities, understand trigger events and report types and decide how they will build or outsource their software solutions. By effectively implementing SFTR, not only do firms mitigate future risks but they could also realise the business benefits that this new regulation brings.”
The Luxoft report indicated almost all (99 percent) of senior compliance professionals responsible for implementing the regulation are confident they will meet the requirements, yet Luxoft’s Regulatory Outlook Report shows that this confidence may be misplaced.
The report highlighted some 98 percent of tier one, tier two and tier three investment banks will be relying on systems and process infrastructure used for past regulations such as the European Market Infrastructure Regulation (EMIR) to comply.
But Geoff Hutton, Europe, Middle East and Africa, regulatory specialist at Luxoft, warned: “Some of the groundwork from these [past] regulations will help firms to comply, however, SFTR presents a completely different set of challenges.”
He added: “Capturing the data required and putting in place the processes and technology to report efficiently will be a huge and costly challenge which firms are not prepared for.”
Though, almost three quarters (72 percent) of those asked agreed that SFTR implementation will be more costly than EMIR or the second Markets in Financial Instruments Directive (MIFID II), with 30 percent stating the cost of hiring new talent will be the most expensive aspect.
However, fewer than half (48 percent) of respondents said they have conducted a cost benefit analysis of the regulations or set up a planning committee (46 percent), centralised their SFT reporting (39 percent) or hired a trade repository (TR) (26 percent).
Some 74 percent of those asked said they acknowledged SFTR compliance will require a much more complex IT infrastructure than EMIR or MIFID II, while only 40 percent of senior compliance professionals reported ‘regulatory fatigue’ at their firm.
Elsewhere, 78 percent of firms stated they recognised that investment in compliance for regulatory initiatives such as SFTR makes their market position stronger and more resistant to new entrants.
Hutton said: “SFTR is the most demanding piece of transaction reporting regulation the sector has seen, and firms seem overconfident on delivering on the requirements when there is a vast amount of work to be done, with very little time to spare.”
He concluded: “With the 2020 deadline fast approaching, banks should start establishing SFT activities, understand trigger events and report types and decide how they will build or outsource their software solutions. By effectively implementing SFTR, not only do firms mitigate future risks but they could also realise the business benefits that this new regulation brings.”
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