The introduction of Securities Financing
Transaction Regulation (SFTR) in 2018 will be one of the
biggest ever fundamental changes to the SFT industry, delegates
heard at an EquiLend-hosted event yesterday. However, the
industry is only partially prepared to provide the required
data to trade repositories (TRs) by the 2018 implementation
The aim of SFTR, as with EMIR reporting,
is to provide regulators with sufficiently high quality data to
successfully identify the build-up of systemic risk. Some in
the industry have criticised its approach as heavy-handed and
it certainly creates a huge compliance challenge.
The second round of ESMA’s
consultation closed on 30 November and it is expected that its
final draft technical standards will be submitted to the
European Commission in January 2017 before being
Once finalised, firms will have 12 months
to comply, starting quarterly by banks and investment firms,
followed by CCPs and CSDs, financial counterparties and then
corporates. Therefore, the effective dates are unknown but
expected to start in Q1 2018.
The panel was unanimous in expecting
little or no change from the second draft text. "That has been
pretty clear throughout this process. ESMA has listened and
made changes where it felt they needed to be," said Laurence
Marshall, COO, EquiLend.
A poll of delegates asked how prepared
their organisation was for SFTR: it found that 47% thought that
more analysis was required, 45% understood the requirements but
were still looking for a solution, and all of the remaining 8%
was not prepared. After the event, several people confided they
thought this was overly optimistic.
"The big challenge for firms is to look at
how they process their business today and consider whether they
can get to the required reporting through that model –
I think the answer is 'no’," said Marshall. "There
are going to have to be fundamental changes."
The reluctance of firms to invest in a
reporting solution is at least in part due to confusion about
where responsibility lies.
"I do not think people are particularly
clear as to the way the SFTR regulations will be finalised,"
said Nick Nicholls, lead consultant, GFT UK. "There is a lot of
concern about how they are going to meet those regulations. A
number of clients are looking to see how work that they have
done for EMIR and MIFID II might help them. There are a lot of
unanswered questions that we hope to see clarified."
Agent lenders are usually on hand to help
beneficial owners achieve regulatory compliance and anecdotal
evidence suggests they expect this to be the case for SFTR,
despite the obligations being on the principles to those
James Day, managing director &
business executive for securities finance in EMEA, BNY Mellon
Markets, said: "Most clients we are talking to are looking to
the agent lender to solve the problem. It they have to build
their own solution, I think many will question the benefit of
lending and this could impact market liquidity. The agent
lender therefore needs to evaluate the business case and
associated risks of being part of the solution set and price it