SFTR will have a wide-ranging impact on sell-side banks and broker dealers doing business within the European Union, as well as their counterparties.
Instruments
SFTR defines SFTs as:
Territories
All EU counterparties (plus their non-EU branches and EU branches of third country firms) must report the details of all SFTs concluded, as well as any modification or termination to an authorised Trade Repository (TR).
Counterparties
Financial Counterparties (FCs) such as investment firms, banks, UCITS/AIFs, pension funds, insurance firms, CCPs and CSDs, and Non-Financial Counterparties (NFCs) are both affected.
Certain exemptions exist relating to EU central banks and the Bank for International Settlements.
Implementation timelines
The European Commission has not yet confirmed when it intends to adopt the final RTS although it is expected to be published in the Official Journal of the EU sometime this year. Under a rolling implementation calendar, go live reporting will be phased in starting 12 months after entry into force of the final RTS.
12 months — Banks and investment firms
15 months — CSDs and CCPs
18 months — Other FCs
21 months — NFCs
NB. Entry into force 20 days following publication.
The European Commission reportedly held back from approving ESMA’s draft rules in 2017, due to the logistical challenges the industry faced implementing MiFID II.
SFTR’s reporting requirements are expected to change little before they are approved, with many of the rules copied directly from the European Market Infrastructure Regulation (EMIR). Key elements below.
Trade reporting deadlines
Reports must be made within a T+1 deadline. Counterparties must maintain records of SFTs for at least five years following the termination of the transaction, a requirement that is already in effect.
Dual reporting
Reports must be submitted to TRs for both counterparties. Reporting can be delegated but responsibility cannot. Counterparties are generally responsible for submitting their own reports.
Back-reporting
In the case of SFTs concluded before the reporting start date with a remaining maturity of 180 days or greater on that date, the reports must be submitted within 190 days of the reporting start date.
Details to be reported
ESMA has drawn-up four broad templates covering:
These four sections span a total of 153 data points, of which 96 fields (predominantly from the loan and collateral field set) are reconcilable at the TR after submission. Most of the reconciled fields have minimal or zero tolerance applied when being matched by the TRs.
Identifiers
A unique transaction identifier must be included by participants in their reports to the TRs and counterparties must use LEIs to identify their counterparts.
UCITS/AIFs
The management company/AIFM is responsible for reporting on behalf of the UCITS/AIF.
Medium-sized or smaller NFCs
FCs are responsible for all SFTR reporting when they transact with medium-sized or smaller NFCs.
SFTR regulation comprises three pillars, two of which — concerning re-use of collateral and disclosure obligations for funds – came into force in January 2016. A third pillar that introduces a number of reporting requirements for market participants was published in draft form in March 2017.
EU regulators are expected to formally adopt the rules sometime this year, with reporting to begin one year later.
SFTR will require financial and non-financial counterparties to report specified data fields of SFTs to approved registered EU trade repositories. This reporting must be done on a two-sided, T+1 basis.
