February 25, 2021
As announced in June 2020, the UK has not implemented the reporting obligation of the EU’s SFTR for non-financial counterparties (NFCs), which has started to apply in the EU since January 2021. This is an example of the UK taking a different approach to the EU post-Brexit.
Explore our insights and what this might mean for your firm.
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:
Details of any SFT entered into, as well as any modification or termination thereof, must be reported to a trade repository no later than the working day following the conclusion, modification or termination of the transaction.
What is caught by the reporting obligation?
The reporting obligation covers all SFTs that are:
11 July 2020—CSDs and CCPs
13 July 2020—Credit institutions, investment firms and relevant third country firms are required to start reporting SFTs.
11 October 2020—Other financial counterparties
11 January 2021—Non-financial counterparties (EU SFTR only, not applicable to UK SFTR)
The SFTR does allow a counterparty, subject to the reporting obligation, to delegate such obligation to a third party.
Linda Gibson, Director of Regulatory Change (February 2021)
The third phase of SFTR reporting went live on 12 October 2020. SFTR reporting obligations apply to investment funds, pensions funds and (re-)insurance undertakings that will join sell-side firms, CCPs and CSDs, who have already been providing reporting since July 2020.
In June 2020, the UK announced it will not implement the reporting obligation of the EU’s SFTR for non-financial counterparties (NFCs), which has started to apply in the EU since January 2021. This is an example of the UK taking a different approach to the EU post-Brexit and potential regulatory fragmentation. We continue to monitor further developments in this area.