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that were there for EMIR might not be there for SFTR .” They add that this time around , “ ESMA has learnt from the disaster that was EMIR ”. Finally , there are no more excuses for ignoring 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 .
“ 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 )
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 agreements 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 , modification 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 encouraged 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 infrastructures , should begin in the second half of 2018 .
Timing differs depending on the counterparty however , as the buy-side , agent
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 International 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 approval 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 different 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 : counterparties ’ classifications , the entities subject to reporting requirements , 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 procedures for central trade repositories . “ Importantly , the guidance in relation to Unique Trade Identifiers ( 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 beneficial 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
50 Global Custodian Summer 2018