SFTR and new reporting obligations
SFTR and new reporting obligations
The SFTR (Securities Financing Transaction Regulation No 2015/2365 of the European Parliament of 25 November 2015)
is an important part of the EU’s efforts to improve the transparency of markets in securities financing transactions and consequently of the banking sector and the broadly understood financial system. The Regulation introduces the obligation to report to authorised trade repositories with details of SFTs concluded by all market participants, including both financial and non-financial counterparties. The SFTR gives European supervisory authorities access to information about SFTs in order to improve risk monitoring tools and consequently enhance the safety of financial markets.
Examples of SFTs:
- securities lending and borrowing,
- repo and reverse repo transactions in securities and guaranteed rights,
- buy-sell-back and sell-buy-back transactions in securities, commodities and guaranteed rights,
- collateral management transactions.
It should be noted that the definition of securities financing transactions in the SFTR does not cover derivatives as defined in the EMIR (Regulation No 648/2012). However, it covers liquidity swaps and collateral swaps, which are not covered by the definition of derivatives in the EMIR.
Who will be subject to the obligation to report SFTs to authorised trade repositories?
The obligation to reports SFTs to authorised trade repositories will apply to all businesses operating in the EU, including both financial and non-financial counterparties (irrespective of their business sector), including:
It should be noted that were a financial counterparty enters into an SFT with a non-financial counterparty which does not exceed the limits in respect of at least two of the three criteria defined in Article 3(3) of Directive 2013/34/EU of the European Parliament and of the Council as at its balance-sheet date (in general, small and medium-sized enterprises), the financial counterparty will be responsible for reporting on behalf of both counterparties. This is key difference compared to the obligations imposed on counterparties under the EMIR.
- investment firms,
- credit institutions,
- insurers / reinsurers,
- UCITS (Undertakings for Collective Investment in Transferable Securities),
- AFI (Alternative Investment Funds),
- pension funds,
- CCPs and CSDs.
Effective date of the new regulations
We would like to kindly inform that on March 22, 2019, the Delegated Regulations of the European Commission supplementing Regulation (EU) 2015/2365 of the European Parliament and of the Council (hereinafter the SFTR Regulation) in relation to Regulatory Technical Standards (RTS) were published in the Official Journal of the European Union.
Delegated Regulations shall come into force on the twentieth day after their publication in the above-mentioned Official Journal of the European Union, April 11, 2019. The requirement to report SFT transactions for financial entities will start a year later, on 13 April 2020. Importantly, Article 4 (1) of the SFTR Regulation, informing about the obligation to report transactions, will apply after 12, 15, 18 and 21 months, depending on the type of entity covered by the reporting requirement. Article 33 of the SFTR Regulation specifies in detail which entities will be covered by the obligation to submit SFT data after a given number of months. Below is a link to the database of European Union legal acts in which the Regulations were published:
On 6 January 2020 ESMA has published validation rules and XML schemas for SFTR reporting as required under the SFT Regulation (SFTR).
Validation rules and XML schemas for SFTR reporting
We would like to emphasize that we are currently in the process of developing the reporting mechanism of the SFT Transaction Repository.
The system of SFT Repository will be based on ISO 20022 messages designed by ESMA, which have already been published (ESMA XML schemas for SFTR reporting) and on KDPW's own communications (KDPW xml schemas for SFTR reporting)
KDPW’s new service: SFT trade repository
As counterparties will be required under the SFTR to report details of their transactions to trade repositories, KDPW is preparing to provide market participants with a new service enabling them to meet this obligation. KDPW operates as a Trade Repository under the EMIR and has the necessary experience, expertise, resources and a range of technological and procedural solutions necessary to accept and maintain trade reports. In addition, as a trade repository authorised by the ESMA under the EMIR, KDPW_TR is eligible for the fast-track authorisation procedure under the SFTR.
The complementary service offered by KDPW provides trade repository participants (both under the SFTR and under the EMIR) with major benefits including:
- KDPW_TR’s existing communication interfaces;
- the option of meeting both obligations by reporting to a single TR operator (to save costs and workload thanks to a single communication channel);
- the experience and expertise of KDPW staff operating the Trade Repository;
- professional support in the harmonisation of reporting with the SFTR standards;
- the application of available technical and technological solutions;
- support for SFTs settled in KDPW.
Contact with KDPW_TR:
T: +48 22 537 95 72, +48 22 537 95 26