This article is the third part of the ‘SFTR Shorts’, a series of bite-sized discussions around various aspects of the Securities Financing Transaction Regulation (SFTR). Alan McIntyre, Senior BA and Industry Relations Lead at Regtek.Solutions drills into various aspects of the reporting requirements under SFTR and identifies some of the challenges that firms will need to consider.
Yes, very much so.
ESMA is determined to increase the quality and usefulness of reported data by baking-in a strictly controlled ISO 20022 schema from the outset.
ESMA proposed to use a harmonised XML schema in order to ensure full standardisation of the reporting to be submitted to the TRs, thus enabling the TRs to aggregate and provide data to NCAs without unnecessary data processing or transformations. A common XML schema also enables to embed basic data quality validations in that schema, allowing for the first verification of data when the reporting counterparties generate their reporting.
The enthusiastic embrace of ISO20022 for SFTR is such that ESMA has gone further than in any previous regulation (as I commented here) and has mandated that the ISO20022 XML schema should be used throughout the processing. The firms must use it to submit their trade reports to the Trade Repositories, the TRs must use it for the Inter TR reconciliation processing and the TRs must use it for providing the reports to the NCAs.
The European rule-maker is clearly learning lessons from experience with the implementation of EMIR and sees the a tightly defined schema as crucial to avoiding different interpretations. ESMA acknowledges in the discussion paper (link here) that one respondent [a major trade association] said that including the requirement for ALL firms to submit their SFTR trades to Trade Repositories (TR’s) in ISO 20022 might be too onerous for medium to smaller sized firms. However, ESMA responded by indicating that the benefits outweigh the costs and is clearly intent on pressing ahead with ISO 20022:
such inconsistencies in information that market participants report to TRs are avoidable through the use of standardised ISO 20022 reporting regime by all actors without exceptions.
The inconsistencies they refer to is in relation to a commentary within the paper drawing on the EMIR experience where ESMA acknowledged that the definitions within the EMIR RTS & ITS:
proved to be not sufficiently precise.
The argument is that a well-defined XML schema will avoid the pitfalls and interpretation issues that were experienced previously under EMIR. And whilst only time will tell the logic seems fairly sound.
Senior BA and Industry Relations Lead at RegTek.Solutions
Please join the discussion with Alan on the LinkedIn group: SFTR Transaction Reporting group
Missed last week’s SFTR Short? Read it here.