Brexit: UK will not onshore SFTR for NFCs
23 June 2020 London
Image: Shutterstock.com
The UK’s treasury department has confirmed that the requirement for UK-based non-financial entities (NFCs) to report under the Securities Financing Transactions Regulation (SFTR) will not be on-shored as it falls outside the Brexit transition period.
The chancellor of the exchequer, Rishi Sunak, has today outlined in a written statement that the UK will “exercise its discretion” when implementing EU regulations that will not have come into force by the time the transition period ends on 31 December.
As a result, the UK will not incorporate into law the fourth phase of reporting obligations of the SFTR, which applies to NFCs and is due to apply in the EU from January 2021.
“Given that systemically important NFC trading activity will be captured sufficiently through the other reporting obligations that are due to apply to financial counterparties, it is appropriate for the UK not to impose this further obligation on UK firms,” Sunak writes.
The decision is understood to have been made after lengthy discussions on the matter between the Treasury and Market FinReg, which first highlighted the issue to the UK government some time ago.
Seb Malik, head of financial law at Market FinReg, tells SLT: "This is highly significant in that it shows the UK is already diverging from EU regulation while still in the transition period. UK NFCs will not to caught by SFTR. Larger NFCs and FCs (who must report on behalf of small NFCs) will be breathing a collective sigh of relief.
“The greater question is how far the UK is prepared to diverge going forward."
SFTR legally came into force on 11 April, but those in scope for reporting under the first phase, credit institutions and investment firms, were granted a three-month grace period.
As such, reporting for phase one entities will begin alongside phase two firms, central counterparties and central securities depositories, on 11 July.
The third phase applies to buy side institutions and come into effect on 11 October.
The precedent this decision sets for the UK’s securities financing market participants cannot be overstated.
Sunak used the same written statement to confirm that other major EU regulatory frameworks, will not be onshored after Brexit, including the controversial buy-in regime of the Central Securities Depository Regulation. This may come as a welcome surprise to many in the industry who have warned the EU repeatedly that the rules are not fit for purpose.
The application of the European Market Infrastructure Regulation’s overhauls, known as EMIR Refit, is also up for review.
The chancellor of the exchequer, Rishi Sunak, has today outlined in a written statement that the UK will “exercise its discretion” when implementing EU regulations that will not have come into force by the time the transition period ends on 31 December.
As a result, the UK will not incorporate into law the fourth phase of reporting obligations of the SFTR, which applies to NFCs and is due to apply in the EU from January 2021.
“Given that systemically important NFC trading activity will be captured sufficiently through the other reporting obligations that are due to apply to financial counterparties, it is appropriate for the UK not to impose this further obligation on UK firms,” Sunak writes.
The decision is understood to have been made after lengthy discussions on the matter between the Treasury and Market FinReg, which first highlighted the issue to the UK government some time ago.
Seb Malik, head of financial law at Market FinReg, tells SLT: "This is highly significant in that it shows the UK is already diverging from EU regulation while still in the transition period. UK NFCs will not to caught by SFTR. Larger NFCs and FCs (who must report on behalf of small NFCs) will be breathing a collective sigh of relief.
“The greater question is how far the UK is prepared to diverge going forward."
SFTR legally came into force on 11 April, but those in scope for reporting under the first phase, credit institutions and investment firms, were granted a three-month grace period.
As such, reporting for phase one entities will begin alongside phase two firms, central counterparties and central securities depositories, on 11 July.
The third phase applies to buy side institutions and come into effect on 11 October.
The precedent this decision sets for the UK’s securities financing market participants cannot be overstated.
Sunak used the same written statement to confirm that other major EU regulatory frameworks, will not be onshored after Brexit, including the controversial buy-in regime of the Central Securities Depository Regulation. This may come as a welcome surprise to many in the industry who have warned the EU repeatedly that the rules are not fit for purpose.
The application of the European Market Infrastructure Regulation’s overhauls, known as EMIR Refit, is also up for review.
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