Following the financial crisis of 2008, regulators sought to increase transparency in securities financing transactions (SFTs).
Under SFTR, firms engaged in the following SFTs will need to report them to a trade repository:
- Repurchase transactions
- Buy/Sell Backs
- Securities and Commodities Lending
- Margin Lending Transactions
- Collateral Re-use
The SFTR imposes new obligations on affected firms in relation to three areas:
- Mandatory reporting of SFTs to authorized or recognized trade repositories (reporting obligations)
- Documentation and operational requirements for all collateral reuse arrangements (collateral reuse requirements) and
- Transparency and disclosure requirements for managers of Undertakings for Collective Investment in Transferable Securities (UCITS) and alternative investment funds (AIFs) in respect to SFTs and total return swaps (the Transparency to Fund Investor Requirements)
SFTR Reporting goes live on a staggered schedule and impacts a wide variety of counterparties across the ‘shadow banking’ industry. It is being implemented as follows:
- July 13, 2020 – Reporting for investment firms and credit institutions (delayed from 13 April due to COVID-19) and reporting for Central Securities Depositories and Central Counterparties
- October 10, 2020 – Reporting for insurance/reinsurance undertakings, UCITS, AIFs/Alternative Investment Fund Managers (AIFMs) and institutions for occupational retirement provisions
- January 11, 2021 – Reporting for all non-financial counterparties (EU only)
In addition to reporting new SFT trades, firms will need to report any modification and termination of the transaction and report margin updates and collateral reuse.
SFTR is a complicated regulatory requirement and covers 155 reportable fields, from rule interpretation to reporting practicalities such as Unique Transaction Identifier (UTI) sharing and data reconciliation. The FCA has a webpage covering SFTR, which you can access here.
Duff & Phelps has extensive experience assisting firms with SFTR implementation, including areas such as data, reporting, governance, controls and the provision of training. If you would like to find out more about how we can help you, please contact us.