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Why is SFTR Catching Firms Off Guard?

The five challenges firms are facing.


As the first deadline in April 2020 creeps closer for Securities Financing Transactions Regulation (SFTR) reporting, some firms are still wrestling with how to comply with the new reporting. There are concerns around data and traceability to satisfy the regulatory requirements.

Some firms domiciled outside Europe are also unaware they may be impacted (or to the extent they are impacted) by SFTR. Still others are unaware that the April 2020 milestone only represents the first wave of SFTR compliance.

There are multiple reasons firms have been caught off guard for SFTR readiness. Some are not aware that some/all of their book of business must file under SFTR. Some firms who have been planning for SFTR reporting have simply focused on the European books of business and have been overly narrow in identifying the actual scope. One of the items SFTR is looking to measure is the flows of capital into/outside of the EU from a trading and legal domicile perspective.

Challenge 1: Interpretation of what is in scope is too narrow. Some North American domiciled firms who are not anchored in the EU have discovered transactions they catalogued as out-of-scope since they originated outside the EU, are in fact in scope as a result of least one piece of the transaction. As a basic rule of thumb, Broadridge Consulting Services recommends examining all transactions that have even one leg of deals in their EU domiciled legal entities or with any external entity domiciled within the jurisdiction of the regulation.

Challenge 2: Adherence is complex – workflow driven reporting, rather than just gathering summary data is required. In recent years since the subprime crisis, global regulators have started to rethink their reporting needs. The global shift in regulatory reporting from a snapshot in time reports to deeper dives into understanding workflow, legal/geographical domiciles for positions at end of day, and date/time stamps and are challenging for firms to adhere to. This is especially the case when aiming to report on a cohesive basis across divisions, systems, data sets and internal processes and workflows. The 180-day back-loading requirement will be onerous and will highlight the scale of the challenges with the matching process as it comes into play when the other side of the transaction data is filed.

Challenge 3: Businesses don’t currently capture data for some fields required. This is a challenge for the granularity of data required. Some firms are also not currently capturing or storing static data for their trades, such as Legal Entity Identifier (LEI) and Unique Trader Identifier (UTI) elements.

Challenge 4: Additional data matching fields required in later phases of SFTR rollout. In addition to the matching data fields required in April 2020, more matching fields are required over several phases of rollout currently scheduled for adoption. Planning for data needs beyond Phase 1 is critical to ensure solutions don’t become to tactical, fragmented and onerous to support for SFTR reporting once it is fully rolled out. Most firms and SFTR vendors are planning to populate all fields from day one, rather than taking a phased approach.

Challenge 5: Some in-house or vendor platforms for SFTR are not ready for adoption or are incomplete for needs. If the scope has not been completely identified by a firm, there is a strong chance that the solutions targeted for data and reporting for SFTR will not meet all needs. In addition, many vendors providing solutions are building out offerings. At the time of writing, however, few vendors have production-ready solutions for the collateral re-use elements under SFTR for FSB calculations – most are offering pass-throughs only. It is important for firms to perform detailed due diligence in selecting vendors who can offer a proven end-to-end solution for all phases and needs under SFTR reporting.

This article was originally featured in Global Investor Group.


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