On March 22nd 2019, a series of delegated and implementing regulations supplementing the Securities Financing Transactions Regulation (“SFTR”) were published to enter into force on 11 April 2019 with a transitional period of twelve months before SFTR reporting was required.
SFTR places a requirement on Financial Counterparties (“FCs”) and Non-financial Counterparties (“NFCs”) to report information on their implementation of SFTR to registered/approved Trade Repositories (“TR”).
FCs are defined as entities authorized under one of the EU’s financial services directives including a MiFID authorized investment firm, a credit institution/bank, a UCITS fund managed by an EU UCITS ManCo and an AIF managed by an EU AIFM. NFCs are defined as all counterparties not classified as financial firms that have financial counterparts and whose main mode of business is not financial in nature.
In February 2020, the European Securities and Markets Authority (“ESMA”) and the European Commission each confirmed that non-EU AIFs managed by EU-authorised AIFMs, unlike under EMIR, are not subject to the SFTR reporting obligation.
The term “SFT” is defined in the SFTR to comprise the following:
- Securities or commodities repurchase transactions
- Securities or commodities lending/securities or commodities borrowing transactions
- Securities or commodities buy-sellback transactions or sell-buyback transactions
- Securities margin lending transactions
SFTR makes it clear that other transactions such as retail client lending, syndicated lending and overdraft facilities are not deemed to be SFTs.
SFTR Reporting Requirements
SFTR mandates reporting of all SFTs to a registered TR. TRs centrally collect and maintain the records of SFTs and they play a central role in enhancing the transparency of SFT markets in addition to reducing risks to financial stability.
Details of any SFT entered into, as well as any modification or termination thereof, must be reported to a TR no later than the working day following the conclusion, modification or termination of the transaction (T+1). Once an SFT is reported to an approved TR, a trade level reconciliation takes place and the TR reports any breaks by T+2.
The International Swaps and Derivatives Association (“ISDA”), along with other industry bodies, have recently published a new template agreement, the Master Regulatory Reporting Agreement (“MRRA”), to make it easier for counterparties of SFTs to comply with their reporting obligations. It should be noted that in scope counterparties are permitted to delegate SFT reporting.
SFTR provides that reporting must include a number of items including:
- The parties to the SFT
- The principal amount
- The currency
- The assets used as collateral and their type, quality and value
- Whether collateral is available for reuse
- The value date
- The maturity date
The SFTR requires that, where a UCITS/AIF is the counterparty to SFTs, the UCITS ManCo/AIFM shall be responsible for reporting on behalf of that UCITS/AIF.
SFTR proposes a phased-in approach as regards the counterparties subject to the reporting obligation. The original commencement dates for SFTR reporting to TCs were:
- Credit institutions/banks and MiFID investment firms – 11th April 2020
- Central securities depositories – 11th July 2020
- The remaining FCs (including insurance or reinsurance firms, UCITS, AIFs and pension schemes) – October 11th 2020
- NFCs – January 11th 2021
April 2020 Update
On 19th March 2020, ESMA issued a public statement regarding the postponement of the phase one reporting obligations under SFTR. ESMA stated that it understands that the SFT reporting implementation is now heavily impacted by the COVID-19 pandemic. ESMA therefore stated that:
- It expects EU member state competent authorities not to prioritise their supervisory actions towards counterparties, entities responsible for reporting and investment firms in respect of SFT reporting obligations, under SFTR. The original phase one reporting deadline of 11th April 2020 has been pushed back to 11th July 2020.
- It does not consider it necessary to register any TR ahead of 11th April 2020. As a result, counterparties, entities responsible for reporting and report submitting entities will be unable to report by the reporting start date; and
- It expects TRs to be registered sufficiently ahead of the next phase of the reporting regime, i.e. 11th July 2020, for phase one and phase two applicable entities, i.e. credit institutions, investment firms and central securities depositories.
The above ESMA update does not impact the reporting deadline for UCITS ManCos and AIFMs, this remains at October 11th 2020.
You can download a copy of Securities Financing Transactions Regulation Reporting – Update April 2020 here
KB Associates’ Services
KB Associates offers a range of services to investment funds and ManCos including:
- The provision of UCITS ManCo/AIFM services.
- The provision of designated persons to perform UCITS business plan and AIFMD programme of activity managerial functions
If you would like to discuss any issues raised in this article or related to KB Associates’ services in general, please feel free to contact Mike Kirby (+353 1 667 1980), Peadar De Barra (+353 1 667 1983), Barry Harrington (+353 1 667 1986), Frank Connolly (+353 1 667 1987), Andrew Kehoe (+353 1 613 6396).