SFTR reporting for the buy-side – don’t expect the sell-side to save you
12 June 2019
One month since the new Securities Financing Transaction Regulation (SFTR) reporting regime was published in the EU’s Official Journal, financial services regulatory consultancy, Bovill, warns that firms are at serious risk if they intend to rely on their sell-side counterparts to meet the new standards. It remains unclear whether the sell-side will even be willing to take on this new reporting burden for their clients – but even if they do, an oversight obligation will remain.
Bovill has drawn particular attention to the extra heavy lifting the new regulation will demand of smaller participants in securities financing transactions (SFTs) on the buy-side. What’s more, the need to update reporting systems is likely to prove costly, potentially pushing some to exit the SFT market altogether.
Damon Batten, Managing Consultant at Bovill, comments: “Early signs from the market are giving us some amber warning lights. We’ve seen already that the sell-side don’t always get reporting right for their buy-side clients under the existing EMIR regime. The onus for meeting the SFTR standards will therefore most likely fall on buy-side firms, who should begin work now to make sure that reporting is in place and functioning – whether that means taking on the responsibility themselves, or keeping tabs on the reporting being done on their behalf.”
SFTR seeks to increase transparency on SFTs between European counterparties, which includes the repo market and securities lending, along with commodities-based lending. With regulatory technical standards published in the EU’s Official Journal in April, the 12-month countdown has begun for firms to fully prepare.
The new regulation requires counterparties to SFTs – which include repurchase agreements, securities lending and sell/buy-back transactions – to report 153 data fields within a day of trading. Many of the required data fields are also novel to European financial regulation, adding further complexity to the process of data reconciliation between either side of a trade.