February 15, 2019
The European Union (EU) Securities Financing Transaction Regulation (SFTR) is intended to enhance the transparency of the securities financing markets by requiring those who enter into securities financing transactions (SFTs) to report the SFT to a trade repository.
The SFTR is the product of work carried out by the Financial Stability Board (FSB) and the European Systemic Risk Board (ESRB) to curb shadow banking. They identified SFTs as the creators of bank-like risks during and after the financial crisis period, which without transparency, prevented regulators and supervisors assessing such risks.
A securities financing transaction or SFT means:
The SFTR applies to:
The obligation to report has been staggered depending on the categorisation of the counterparty (see Article 33 of SFTR). The reporting obligation will apply to credit institutions and investment firms 12 months after the date of entry into force of the delegated act adopted by the Commission pursuant to Article 4(9). The delegated act has now been adopted by the Commission and therefore the reporting obligation will commence in Q2 2020.
The SFTR does allow a counterparty, subject to the reporting obligation, to delegate such obligation to a third party.