[ M A R K E T
R E V I E W
|
S F T R ]
that were there for EMIR might not be
there for SFTR.” They add that this time
around, “ESMA has learnt from the disas-
ter that was EMIR”.
Finally, there are no more excuses for ig-
noring this regulation. MiFID II may have
been a distraction and a time-consuming
burden, but now its implementation date
has passed, this new regulatory beast is
the next priority.
“As with all finance regulation, the key is
to get in front of it. It does have the ability
to change the market, a lot comes down to
people wanting to match, understanding
exactly who they are facing and what the
collateral is in real-time basis,” says Alex
Lawton, head of securities finance, State
Street.
Get ready for the ride
Lawton’s sentiment echoes that of every
previous major financial regulation from
MiFID II to Dodd-Frank – be prepared.
The purpose of SFTR is to provide
greater transparency on cross-asset class
lending, borrowing, repurchase agree-
ments and sale/buy-back agreements
among counterparties in the EU.
Regulators are proposing that details of
these transactions are stored for at least
five years after their completion, modifi-
cation and termination in T+1 timeframe.
The regulation came into force in 2016,
however the final endorsement from the
European Commission is expected by the
end of June 2018.*
Following this, firms are being encour-
aged to start building and testing their
infrastructures ahead of the rules coming
into force in 2019, a year on from the final
endorsement. Experts are recommending
that the first compliance phase, which
includes design, build and test of the in-
“A much more gradual approach and more
reliance on central infrastructures to collect
data could have proved beneficial delivering
consistent data.”
ALEXANDER WESTPHAL, DIRECTOR, MARKET PRACTICE AND REGULATORY
POLICY, INTERNATIONAL CAPITAL MARKET ASSOCIATION (ICMA)
frastructures, should begin in the second
half of 2018.
Timing differs depending on the coun-
terparty however, as the buy-side, agent
50
Global Custodian
Summer 2018
Dates for your diary
The European Commission said it will finalise the review
of the draft technical standards by the end of June 2018,
however at the time of going to press this had not been
issued. As Alexander Westphal, a director in the Internation-
al Capital Market Association (ICMA) market practice and
regulatory policy team, explains, even when the Commission
releases its review, this will not be the end of the process.
“The RTS have to be reviewed by the Parliament and the
Council before they are adopted and published, only then
will we have a clear idea of the timeline to implementation,”
says Westphal. “Assuming Commission app roval before the
summer, we currently expect reporting go-live for banks
and other investment firms around Q4 2019. Other market
participants will have a few months more to prepare.”
banks, repo dealers and prime brokers will all be subject to differ-
ent compliance dates.
Much like its predecessor in EMIR, transactions will have to be
reported to a trade repository, however this may be delegated.
Learning from past mistakes
As well as both being born out of regulations stemming from the
financial crisis, EMIR and SFTR have other things in common.
The London Stock Exchange’s repository UnaVista observed the
similarities in SFTR’s current format as the following: counter-
parties’ classifications, the entities subject to reporting require-
ments, the granularity level at which the reporting is required, the
mechanics of reporting and the approach to collecting reference
data associated with the financial instruments in scope.
Alexander Westphal, director, market practice and regulatory
policy at the International Capital Market Association (ICMA)
believes the technical standards provided by regulators are more
detailed than in EMIR, including the definition of reporting
fields, which is now fully aligned with ISO20022, and the proce-
dures for central trade repositories.
“Importantly, the guidance in relation to Unique Trade Identi-
fiers (UTIs), which has caused major problems under EMIR, is
more granular under SFTR,” explains Westphal.
“Sadly however, from our point of view some of the big lessons
have not been learned. For instance, judging by the EMIR
experience, a much more gradual approach and more reliance
on central infrastructures to collect data could have proved ben-
eficial delivering consistent data more quickly with rather less
waste of time and effort on all sides.”
Toughest reporting challenge yet
The disadvantages of being linked with EMIR, and following
other reporting requirements, are that regulators may not have
the same patience with issues arising from the regulation. This
is despite SFTR being touted as the most challenging of them all.
It goes beyond being a simple trade reporting process as its roots
grow into operations and IT systems of all kinds of institutions.
Post-trade and technology firm NEX released a report this