Securities Financing Transactions Regulation (SFTR)

The crisis revealed the need to improve transparency, not only in the traditional banking sector, but also in the credit intermediation area outside the sector: the shadow banking sector. The ‘Regulation on Transparency of Security Financing Transactions and of Re-Use’ (SFTR) was formulated by the EU to strengthen the oversight and transparency of the shadow banking sector. The scope of SFTR covers securities financing transactions, commodities financing transactions and various types of collateral arrangements (and total return swaps for UCITS/AIFs). SFTR defines several regulatory requirements (using a phased-in approach), mainly (1) risk disclosure and re-use of collateral, (2) reporting to a trade repository and (3) additional investor disclosure by UCITS/AIFs.

2019
2020
2021
2022
2023
2024
4
1
Implementation / enforcement 09/2013 - 01/2014
2
Discussion / consultation 01/2014 - 12/2015
3
Implementation / enforcement 12/2015 - 01/2019
4
In effect 01/2019 -

STATUS
Only a limited number of obligations apply at the moment, the rest of the obligations are phased in (estimated until january 2019).

SFTR impacts financial and non-financial counterparties in the EU or acting as counterparty to the EU party. The EU seems the first to implement this regulation, which may lead to an unleveled playing field. Risk disclosure and re-use consent may limit collateral availability and as such market liquidity. Assessing interrelationships with other regulations in an organization is required (e.g. Collateral Directive, UCITS/AIF Directives and MiFID II). Whereas SFTR is phased in, due date for risk disclosure and re­use of collateral is July 2016, requiring review of title transfer/security interest and implying cooperation from counterparties. Furthermore, attention is required for account transfer and reporting tool, especially data quality and alignment with other reporting, like MMSR.

Further information:
European Commission: Security Financing Transactions

author
Ivo Habets Senior Manager
Categories: Financial Market Organisation