It would be "foolish" for market participants to
underestimate challenges inherent in satisfying a detailed,
dual-sided, reporting regime such as SFTR, according to a
regulatory expert at Boston-based bank BBH.
The EU regulation is designed to improve transparency and
monitoring of securities financing transactions (SFTs), which
includes securities lending, repurchase and reverse repurchase
The measures proposed are similar to EMIR adopted in 2012,
which introduced mandatory reporting for derivative
While most asset managers have begun preparations for these
requirements, SFTR’s most significant and complex
phase begins with the implementation of Article 4.
The implementation of Article 4 was originally set to occur
in Q1 2018. However, the
expected release date for ESMA's final Regulatory Technical
Standards (RTS) has been revised to Q4 2017 so the
expected to occur one year later, is Q4 2018.
"This phase introduces the mandatory reporting of individual
SFTs," Garrett Berkery, BBH’s global head of risk
management for the securities lending and currency
administration products, explained in a recent online post.
"The industry will have one year from this date to
Based on the draft technical specifications, Berkery
believes the scope of required data fields is expansive.
For example, the jurisdiction and type of legal contract
governing the transaction is not data typically stored at
transaction level but must be reported per transaction under
the new rules.
"The draft technical specifications also require that
approximately 60 data fields be matched within very tight, or
zero, tolerances," he added.
"This is approximately six times the number of fields
required to match under EMIR."
As Berkery points out, unique aspect of the reporting
requirements is that they apply to EU and third-country
counterparties if the SFT is transacted through an EU branch of
that third country counterparty.
"For example, a stock loan between a Japanese pension fund
and the London branch of a Swiss bank would be included in the
scope of the regulation because one party to the trade is an EU
branch even though neither the lender nor the
borrower’s principal office is in the EU."
Berkery warned that principals to SFTs "must engage" in 2017
to develop solutions for satisfying these complex filing
"Firms committed to satisfying them will need to conduct the
classic build, buy, or outsource assessment.
"A year may appear to be enough time to finalize solutions
but lessons learned from EMIR suggest otherwise," Berkery
This article as been amended to reflect the delay in the
publication of ESMA's final
Regulatory Technical Standards (RTS).