SFTR Introduction
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»Duties coming from complex regulatory requirements become harder to comprehend. We stay on top of things for you—subject-specific and technological.«

Arne Grotheer, Partner LPA

SFTR

After having gone live with the EMIR, MSSR and MiFID II reporting, the pace of regulatory change shows no sign of decrease for financial institutions in Europe.

With the reporting obligations under article 4 of the Securities Financing Transaction Regulation (SFTR) a new challenge is waiting just around the corner. SFTR represents a significant change to the securities finance industry with a phased reporting obligation from April 2020.

Key facts

  • EU counterparties, plus their non-EU branches and EU branches of third party firms need to report the details of all SFTs traded, including collateral, reuse and any modification or termination for the following products to a trade repository (TR) authorized under SFTR.
    • Securities and Commodities borrowing/lending
    • Repurchase Agreements
    • Sell-Buy Back and Buy-Sell-Back transactions and
    • Margin lending agreements
    • Total Return Swaps
  • The SFTR reporting obligation will be a phased approach starting on 11 April 2020 with credit institutions, investment firms and relevant third country firms being first in line, followed by CCPs and CSDs on 11 July 2020, OGAWs, AIFs and Insurances on 11 October 2020 and Non-Financial Counterparties on 11 January 2021.
  • The SFTR reporting obligation has 155 reportable fields. There will also be two phases of a TR reconciliation process, with the first phase consisting of 62 matchable fields required for the initial SFTR implementation. A second phase, starting 2 years after the start of the reporting obligation, will contain another 34 matchable fields, bringing the total matchable fields required to 96.
  • The standard reporting format will be based on ISO20022, with trade information required on T+1 and reporting of the associated collateral on S+1.
  • The reporting requirement is dual-sided and requires a Unique Transaction Identifier (UTI) generation in accordance with the waterfall model used under EMIR.
May 27, 2019
ESMA Consults
Future Reporting Guidelines under SFTR
March 22, 2019
Official Journal of the EU
SFTR related delegated Regulations

What are the major challenges for our clients?

It is clear that in order to comply with the new regulation, many financial services providers will need to change their existing processes and overcome many challenges.

Data Availability

The location of the full data set is currently highly fragmented, with no counterparty or system having all of the reportable data. Many of the required fields are allocated in various applications or currently not available in the required format, which could lead to data sourcing difficulties. The challenge for our clients is identifying, pulling together, harmonizing and controlling the full set of data in line with the field-specific reporting requirements.

Reconciliation

SFTR Reporting requires TRs to match 62 reportable fields with no tolerance for difference on 52 of these fields. In some instances, the reportable data is currently captured i.e. classification of a security via ISO10692.

Effectiveness and Efficiency

Fragmentation of processes and reporting routes will complicate end-to-end solutions. Since SFTR also applies to counterparties outside the European Economic Area (EEA) there is a need for a multi-jurisdictional solution. Some firms will want to leverage their existing strategic regulatory reporting infrastructure, which are required to support the new regulation.

Make-or-buy

With the strict reconciliation rules, market participants will have to decide whether they will send all reportable data directly to the TR or if they integrate a reporting service/engine, that validates and enriches reporting sets before being send out to the TR.

Our Offer

For many years, LPA supports its clients in the financial industry as a trusted management and technology consultancy in the context of complex regulatory and IT-infrastructure driven projects.

Based on our SFTR expertise gained on already delivered projects we can leverage on our distinctive capital markets knowledge and extensive regulatory project experience to help you navigate along all relevant project phases.

Our offer includes:

  • Impact- and portfolio analysis
  • Requirement Assessment and engineering based on client specific products, counterparties and systems
  • GAP analysis, Data requirements and availability
  • Support in ensuring an SFTR compliant data quality
  • UTI generation
  • Selection of a trade repository and connectivity set up
  • Analysis Make-or-Buy Decision and, if required, selection of a preferred service provider
  • Support with the SFTR implementation (ISO20022 format, interfaces, data mapping and consolidation, report generation)
  • Selection and processing of received reports (ACK/NACK, reconciliation and end of day reports)
  • Test preparation and execution
  • Support with the go live and aftercare

Please do not hesitate to get in contact with us. In case of any questions or for further information, we will be happy to advise you.

Would you like to know more?

We will be happy to advise you.

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Günther Neurohr
Manager
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