SFTS: ‘Two speed’ SFTR validation rules causing ‘growing level of divergence’
27 November 2023 UK
Image: SFT
The UK and EU have seen a ‘small but growing level of divergence’ in the face of upcoming Securities Financing Transactions Regulation (SFTR) updates, which will potentially lead to ‘two speed’ changes to validation rules, according to Jonathan Lee, money markets reporting director at Kaizen.
Panellists at this year’s Securities Finance Technology Symposium in London discussed navigating the regulatory landscape, including Money Market Statistical Reporting, 10c-1 and the new SFTR validation rules.
During the discussion, Lee indicated that a 15-month gap remains between the go-live dates for the validation rules in the EU and UK. These took effect in the EU in September 2023, with the UK set to adopt the rules in November 2024.
According to Lee, the validation rules have become an ‘onerous task’ in this respect.
Almost three years on from its implementation, market participants also anticipate a review of the SFTR regulation.
The review was initially scheduled for 2024. However, after scrutinising the European Securities and Markets Authority’s (ESMA’s) agenda for next year, Lee recalls no mention of the review, noting that this could now be a 2025 initiative. He indicated that the ‘wheels continue to move very slowly’ in this regard.
Panellists also raised concern in the ‘Navigating the regulatory horizon’ session around reporting requirements for Money Market Statistical Reporting (MMSR) for banks that operate within the EU.
MMSR was set up by the European Central Bank (ECB) in 2016 and is a vital part of the ECB’s monetary and financial policy, providing the dataset used by the European bank to calculate the daily publication of the Euro short-term rate (€STR) benchmark interest rates.
In its latest development, the ECB announced earlier this year that there will be an additional 24 banks — third country banks that now have branches in the EU — which will be required to report from 1 July 2024. This will add to the 47 banks currently reporting through MMSR.
Further, these newly selected banks are required to provide a ‘pilot go-live’ of this reporting from January 2024.
The organisations that are expected to report next year have raised ‘a lot of concern’ about the requirements, Lee added.
Organisations falling under the scope of this regulation are required to report on 44 data points under their MMSR obligations. Lee estimated that at least 20 of these data points have a crossover with data required for SFTR reporting.
Firms will need to submit their data between 18:00 CET and 07:00 CET the following day — a day in advance of the SFTR reporting requirements.
For Iain Mackay, product owner for RegTech Solutions at EquiLend, the MMSR data fields overlapping SFTR reporting reflects the “fragmented approach to regulatory reporting” that the market is currently experiencing.
He continued: “From a client perspective, they are looking to submit quality data in the correct time frame and in the most cost-effective manner. It is a challenge for them to be able to do this.”
To ease some concern around the reporting requirements, particularly in regards to quality data, Mackay said there is a need for governance, or a framework, for data standards and data quality. This will help to combat queries clients face from regulators about the data that is being submitted.
Mackay informed the event attendees that the Bank of England (BoE) and the Financial Conduct Authority (FCA) have collaborated with the aim to transform data collection. Both entities found that there is currently a fragmented approach to this and that operational processing has become a challenge for market participants.
The bank and the UK Authority have recommended forming a committee and creating a taxonomy around data standards, Mackay added. This aims to form a framework which will help to provide consistency in terms of the data being submitted.
Panellists at this year’s Securities Finance Technology Symposium in London discussed navigating the regulatory landscape, including Money Market Statistical Reporting, 10c-1 and the new SFTR validation rules.
During the discussion, Lee indicated that a 15-month gap remains between the go-live dates for the validation rules in the EU and UK. These took effect in the EU in September 2023, with the UK set to adopt the rules in November 2024.
According to Lee, the validation rules have become an ‘onerous task’ in this respect.
Almost three years on from its implementation, market participants also anticipate a review of the SFTR regulation.
The review was initially scheduled for 2024. However, after scrutinising the European Securities and Markets Authority’s (ESMA’s) agenda for next year, Lee recalls no mention of the review, noting that this could now be a 2025 initiative. He indicated that the ‘wheels continue to move very slowly’ in this regard.
Panellists also raised concern in the ‘Navigating the regulatory horizon’ session around reporting requirements for Money Market Statistical Reporting (MMSR) for banks that operate within the EU.
MMSR was set up by the European Central Bank (ECB) in 2016 and is a vital part of the ECB’s monetary and financial policy, providing the dataset used by the European bank to calculate the daily publication of the Euro short-term rate (€STR) benchmark interest rates.
In its latest development, the ECB announced earlier this year that there will be an additional 24 banks — third country banks that now have branches in the EU — which will be required to report from 1 July 2024. This will add to the 47 banks currently reporting through MMSR.
Further, these newly selected banks are required to provide a ‘pilot go-live’ of this reporting from January 2024.
The organisations that are expected to report next year have raised ‘a lot of concern’ about the requirements, Lee added.
Organisations falling under the scope of this regulation are required to report on 44 data points under their MMSR obligations. Lee estimated that at least 20 of these data points have a crossover with data required for SFTR reporting.
Firms will need to submit their data between 18:00 CET and 07:00 CET the following day — a day in advance of the SFTR reporting requirements.
For Iain Mackay, product owner for RegTech Solutions at EquiLend, the MMSR data fields overlapping SFTR reporting reflects the “fragmented approach to regulatory reporting” that the market is currently experiencing.
He continued: “From a client perspective, they are looking to submit quality data in the correct time frame and in the most cost-effective manner. It is a challenge for them to be able to do this.”
To ease some concern around the reporting requirements, particularly in regards to quality data, Mackay said there is a need for governance, or a framework, for data standards and data quality. This will help to combat queries clients face from regulators about the data that is being submitted.
Mackay informed the event attendees that the Bank of England (BoE) and the Financial Conduct Authority (FCA) have collaborated with the aim to transform data collection. Both entities found that there is currently a fragmented approach to this and that operational processing has become a challenge for market participants.
The bank and the UK Authority have recommended forming a committee and creating a taxonomy around data standards, Mackay added. This aims to form a framework which will help to provide consistency in terms of the data being submitted.
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