After much market speculation around potential further delays, the Securities Financing Transaction Regulation (SFTR) Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) for Article 4 of the regulation were on Friday published in the Official Journal of the EU. This sets the go-live date for the first wave of firms impacted to April 2020, leaving firms a little over 12 months to get to grips with the considerable reporting challenge.
The phased-in implementation timeline goes as follow:
- Phase 1: April 11, 2020 – Credit Institutions and Investment Firms
- Phase 2: July 11, 2020 – Central Counterparties (CCPs) and Central Securities Depositories (CSDs)
- Phase 3: October 11, 2020 – Pension Funds and UCITS
- Phase 4: January 11, 2021 – Non-Financial Counterparties
As firms embark on their SFTR programmes, Chris Cornish, SFTR SME and Senior Business Analyst Consultant at RegTek.Solutions, explores some of the key considerations and factors for success.
Understand your reporting obligation
- Navigate SFTR’s complex reporting framework
The data challenge has been well documented. Disparate and fragmented data plagues the new regulatory framework, with the reportable data being made available at different times and coming from different sources. The scope is also vast. Under SFTR, 156 data fields are to be reported. To add an element of comparison, EMIR requires 129 fields, and MiFIR only 65. With some of the most recent estimates pointing to only 60% of those 156 fields as being readily available to firms today, the data challenge will surely be the main contention point.
- Understand the scope of your mandatory delegated reporting obligation
Mandatory delegated reporting obligations exist in SFTR in two situations/groups. Financial counterparties have a mandate to report on behalf of certain non-financial counterparties, and management companies for the UCITs and AIFs they manage.
- Join the conversation
Consider joining an industry group to enhance your understanding of the framework and be in line with the latest best practices. Meetings are organised monthly by the likes of the International Capital Markets Association (ICMA) and the International Securities Lending Association (ISLA), as well as various trade repositories and vendors active in the space, creating an opportunity to share intelligence, reduce the unnecessary burden of working in silos, and minimise the inefficiency of duplicating the work.
Understand the impact on your business processes and define your target operating model
- Identify golden sources for data sources and plan for remediation where required
Sources of data for SFTR are plentiful. To name just a few, golden sources consist of counterparty reference data, security reference data, transaction terms, legal and collateral data. Firms should carry out a thorough audit of their data to first locate it, and then decide how to incorporate it into their reporting flow. Format matters too, as SFTR is the first regulation to mandate the use of ISO20022, meaning another consideration is the generation of messages in a TR-digestible format.
- Decide whether to offer / make use of voluntary delegated reporting
While delegated reporting is mandatory in some cases as mentioned above, most firms will have to make a decision on the business model they want to adopt. That includes both deciding to offer or make use of delegated reporting services. Typically, smaller firms have had an appetite to minimise the administrative and operational burden by delegating their reporting. But with accountability for reporting accuracy still on them, some might see SFTR as an opportunity to gain control over their data and implement their own reporting solution. In any case, having robust controls in place to ensure the quality, completeness and accuracy of data will be a must-have from day one.
Start planning for business and IT change
- Select a Trade Repository
The mandated use of ISO20022 offers firms a chance to reassess their TR relationship. By standardising the message format, ESMA has effectively given firms the option to choose the TR they feel will be the best partner on this new regulation without having their decision obscured by potential operational and technological friction. This also means firms can take their time in selecting a TR as the interface is already known.
- Give yourself enough time to perform all testing
12 months might seem like a long time, but all things considered really isn’t. From client discussions, we understand that most firms are looking to perform testing over at least a 3-month period. Despite competing demands, such as those related to potential Brexit-related changes to the European reporting framework, firms have no choice but to make SFTR a priority if they want to meet the April 2020 deadline.
- Navigate the vendor landscape
Firms will have many decisions to make with regards to the implementation of IT changes to meet the SFTR mandate. And regardless of where a firm decides to place itself on the buy vs build conundrum, or if it decides to leverage a mixture of the two, having visibility over vendor offerings and the efficiencies they could bring should feature highly on firms’ to-do list. By engaging with a vendor, impacted firms could potentially accelerate their change program or reduce spend through the mutualisation of costs, among other benefits.
Our award-winning SFTR solutions are designed to help firms at every step of their programmes, from the business analysis of the regulation all the way through to production control of data quality. Building on our expertise with global jurisdictions, we have extended support for SFTR on our leading validation engine Validate.Trade and our enhanced reporting portal Load.Trade.
To find out more, please contact a member of our sales teams on [email protected]