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Turf war between ESMA and European Commission delays reporting obligation.
Mandatory reporting obligation can be expected gradually as of the first quarter of 2020.
More than 16 months have passed, since the European Securities and Markets Authority (ESMA) submitted their final draft regarding regulatory technical standards (RTS) on securities financing transaction regulation (SFTR) to the European Commission in March 2017 for approval. Market participants have been expecting a response of the European Commission and a corresponding approval of the RTS ever since. Such an endorsement would have triggered a gradual inception of the reporting obligations after publication in the Official Journal of the European Union.
Finally, the European Commission responded with a letter to ESMA on July 23, 2018. With this letter, ESMA was informed that the European Commission intends to adopt the proposals with revisions. ESMA now has six weeks to incorporate the proposed changes and resubmit the reworked RTS. If the European Commission endorses the revised version within three months, market participants can expect a gradual enforcement of the reporting obligation as of the first quarter of 2020.
Required revisions are highly politically charged.
It is more than noteworthy, that the intended revisions of the European Commission neither changes ESMA’s proposal content-related nor on a fundamental basis. It is rather a matter of competencies, which ESMA shifted to its own benefit. In particular, the dispute is about the forthcoming mandatory application of LEIs from branches and UTIs „once endorsed by ESMA“.
Hereto, the European Commission takes an unequivocal stand and insists:
“To ensure legal certainty, the proposed amendment clarifies that […] the responsibility to introduce changes to the reporting requirements due to potentially forthcoming industry standards remains with the Commission […]. Therefore, the proposed amendment removes from the draft regulatory and implementing technical standards the references to endorsements by ESMA of potentially forthcoming industry standards.”
The European Commission further explains:
“The proposed amendment avoids that the wording in the draft technical standards submitted by ESMA be understood as delegating regulatory powers on potential future reporting requirements directly to ESMA, which is legally not possible under the legal framework governing the European Supervisory Authorities.”
The impact of the European Commission`s letter is considerable.
It appears, that the required revisions are just a turf war between the European Commission and ESMA which has no impact on financial institutes affected by the mandatory reporting obligation under SFTR. However, the European Commission`s letter of July 23, 2018 offers two highly relevant lessons for market participants.
- The final regulatory technical standards already exist!
The intended modifications of the European Commission just aim to give answer on the question, who has the final say regarding forthcoming changes to the reporting requirements. They do not provide any contend-related changes in terms of reporting requirements, their format or details. Therefore, the final reporting specifications already exist since 16(!) months. Financial institutions affected by the reporting obligation can already start implementing the requirements as of today. This seems very advisable since the demanded reporting items are of complex nature and huge in number (> 150).
- Both, the timeline and the commencement of the reporting obligation are clearly set out!
The announcement of the European Commission to adopt ESMA`s final draft on the RTS with revisions triggers a clear schedule of European legislation. ESMA now has six weeks to revise their RTS and submit the reworked version to the European Commission. Subsequently, the Commission can accept the amended RTS within a period of three months. 20 days after its publication in the Official Journal of the European Union the mandatory reporting obligation will entry into force gradually. In other words, credit institutions and investment firms can expect a commencement of the reporting requirements as of the first quarter of 2020.
How LPA supports your reporting implementation?
LPA has been assisting banks with the implementation of regulatory obligations for more than 15 years. For the fulfilment of the new reporting requirements of securities financing transactions we support you with analyzing the requirements and develop a target architecture, which can be implemented consistent with your EMIR and MiFIR requirements. Moreover, our consulting services cover the support and performance of business design, implementation, testing and go-live in your institution.
Please do not hesitate to contact us!
Letter EU Commission to ESMA: http://ec.europa.eu/transparency/regdoc/rep/3/2018/EN/C-2018-4730-F1-EN-MAIN-PART-1.PDF
Letter EU Commission to ESMA (Annex): https://ec.europa.eu/transparency/regdoc/rep/3/2018/EN/C-2018-4730-F1-EN-ANNEX-1-PART-1.PDF
Matthias Kirberger is Manager at LPA with focus on Regulatory Topics and Capital Markets Business. He has been supporting clients to cope with regulatory requirements such as EMIR, MiFID II and SFTR since many years.