SFTR A harder version of EMIR? April Fabian Klar, Business Development Manager, REGIS-TR S.A.

Transcription

1 SFTR A harder version of EMIR? April 2018 Fabian Klar, Business Development Manager, REGIS-TR S.A.

2 About REGIS-TR REGIS-TR Your European Trade Repository of choice A European Trade Repository REGIS-TR is a central trade repository for reporting trades and transactions covering all types of derivatives (i.e. ETD and OTC) across multiple product classes and jurisdictions. The trade repository is open to financial and nonfinancial institutions, and services all of the major G20 regulatory reporting obligations in Europe. On 1st April 2017, REGIS-TR was recognised as a foreign TR for the FinfraG Regulation to the Swiss Financial Market Authority FINMA. Once the approval process has been opened for Securities Financing Transaction Regulation, REGIS-TR will apply for a license extension to become an approved TR under SFTR. REGIS-TR is a truly European Trade Repository with high quality services and relationship management support from multiple locations and in multiple European languages. REGIS-TR s history REGIS-TR was founded on 9 December 2010, and is incorporated and headquartered in the Grand Duchy of Luxembourg. REGIS-TR is a joint venture launched by the Spanish CSD, Iberclear and Clearstream. A one-stop-shop for regulatory reporting requirements REGIS-TR collects and administers details of trades and transactions reported by its clients in order to give market participants and regulators an aggregated view of positions in compliance with the relevant regulations. In addition to its core services, REGIS-TR is already progressing well towards its goal of becoming a one-stop-shop for regulatory reporting requirements. 1,500 individual client accounts reporting under EMIR and FinfraG with over 7M reported trades per day Dedicated technical helpdesk support April

3 SFTR regulatory reporting overview (1/2) Trade repository reporting is estimated to begin in Q with a phased-in approach depending on the counterparty classification January 2016: Entry into force of SFTR Q Submission of RTS by ESMA within 12 months after the entry into force of SFTR 31 March 2017 Q Estimated entry into force of final RTS Depending on adoption and scrutiny period Q Reporting start date for investment firms and credit institutions (12 months after the application of RTS) Q Reporting start date for CCPs and CSDs (15 months after the application of RTS) Q Reporting start date for other financial counterparties: insurance/reinsuranc e undertakings, UCITS ManCos; AIFM (18 months after the application of RTS) Q Reporting start date for non-financial counterparties (21 months after the application of RTS) PHASED-IN APPROACH What is SFTR? SFTR = Securities Financing Transaction Regulation Drawn on EMIR implementation infrastructure and supervised by ESMA Aims at providing increased transparency on the use of securities financing transactions in the market Investment firms Credit institutions Insurance companies UCITS management companies and AIFMs Geographical scope Applies to all EU financial and non-financial counterparties Including all branches irrespective of their location Third country entities are also required to report, if the SFT is concluded by an EU branch Entities in scope Institution for occupational retirement provision Central counterparties Central securities depositary Non financial companies EXEMPTION: counterparties entering into SFT transactions with the European System of Central Banks ( ESBC ) April

4 SFTR regulatory reporting overview (2/2) Reporting process The reporting shall be submitted to a trade repository registered in accordance with EU regulation SFTR Reporting obligations fall on both counterparties EXCEPTION: o Financial counterparty has to report on behalf of a small non-financial counterparty o Fund managers on behalf of their funds Discretionary delegated reporting is also possible Maintain record min. 5 years (conclusion, termination and modification) Reporting on T+1 basis Product scope Repurchase transactions Lending and borrowing transactions Sell/Buy back transactions Margin lending transactions Etc. Does not include derivatives as under EMIR Excluded in the scope of MIFID II Details to report Parties to the SFT, principal amount, currency, assets used as collateral, quality and value etc. LEI, ISIN, UTI 4 tables; #153 fields Phased in number of reconcilable fields (62 fields at the beginning and additional 34 fields 2 years after the implementation) April

5 Similarities High-level similarities with EMIR reporting Reporting is mandatory through an ESMA licensed Trade Repository Reporting is T+1 The obligation to report is double-sided Financial Counterparties and Non-Financial Counterparties are in the scope of the regulation It is permissible to delegate the reporting to a counterparty or even to a 3 rd party provider Common data elements with EMIR, like the LEI, UTI etc. Collateral linked to the underlying transactions also has to be reported Counterparties need to keep transaction records for at least five years There are a number of similarities between EMIR and SFTR April

6 Differences High-level differences with EMIR reporting The product scope is different as EMIR targets derivative contracts while SFTR targets the Securities Financing Transaction SFTR introduces the concept of a shift in reporting obligation for NFCs where an NFC trades with an FC (under review with EMIR REFIT) Reporting obligations for Branches, EU branches of Non-EU entities don t need to report under EMIR, but they are subject to SFTR reporting The reporting will be phased in, again based on counterparty classification Investment firms and credit institutions start reporting 12 months after the application of the RTS CSDs and CCPs 15 months UCITS Mancos and AIFMs 18 months NFCs 21 months SFTR requires reporting to TRs using ISO20022 format Collateral re-use must be reported on S+1 Higher number of reconcilable fields (62 fields as of reporting start date and another 34 fields after 2 years) There are also a number of differences between EMIR and SFTR April

7 Lessons learned from EMIR as regards SFTR implementation Greater consistency in reporting Phased reporting implementation Compulsory delegation for corporates Implementation of ISO20022 Reconciliation Smaller subset to be reconciled from RSD Remaining set of reconcilable data 2 years thereafter Natural intermediaries Already developing innovative reporting solutions including: data augmentation matching reconciliation Data can be scrubbed upstream of the TR System scalability Know-how on regulatory data processing Operate on cost-plus basis and stringently regulated More precise framework More precise than EMIR from the outset Lots of pragmatic solutions in place for market participants to meet their reporting obligations Well represented industry ICMA and ISLA have a deep understanding of the prevailing market practices and how to overcome potential hurdles in meeting the reporting obligations April

8 Main challenges for SFTR implementation (1/2) SFTR is widely accepted to be complex and far reaching in scope Significant number of reportable transaction types Transaction types In Clearstream alone, there are more than 12 distinct transaction types which are reportable Funds European Central Banks (exempt) Collateral Management Agent Whilst the reporting responsibility lies with the market Entities and intermediaries participant, the transactions undertaken are almost always intermediated by at least one other entity Investment Banks Agent Lenders Borrowers The delegation and reporting flow possibilities will be many Trade Repository CCP Vendors The required data does not reside in one single place Data fragmentation Market participants will require intermediaries to help them complete their reporting obligations No single intermediary has all of the data Brokers Prime Brokers Matching and reconciliation platforms CSD April

9 Main challenges for SFTR implementation (2/2) Participants will look for the most pragmatic way of meeting their reporting obligations True cost Post-EMIR, participants recognise that the true cost of reporting lies in exception management for poor quality data and in mitigating the risk of misreporting (and not the small per transaction TR fee) Alien data elements In the SFTR world, data elements such as LEI and UTI are not commonplace Timing challenges Timing challenges It will be extremely challenging to report by close of T+1 when some data (e.g. collateral) has to first be allocated and reconciled. Someone will need to consolidate the data into the format required by the technical specifications and report to the TR on T+1 There are a number of third parties who are naturally positioned to intermediate the reporting by pre-matching/reconciling the data and augmenting the data upstream of the TR. April

10 The main challenges of transactions reporting ISO20022 Submission only in ISO 2022 XML format Each report needs to be complete and fully formed: successful creation guarantees the quality of a great deal of data. LEI Correct LEI identification of entities for all entities (even outside of Europe) Over a dozen field require LEI, all need to be maintained Internal interoperability Inter-departmental interoperability is a must. Repo and Lending desks are usually different departments. Improvement and Maintenance of Data Management UTI UTI creation and sharing Timing of UTI generation SFTR reporting challenges Lifecycle Events Reporting of all the lifecycle and posttrade events that are part of SFT trading Automatic and complete sending of the reports. April

11 T+1 Trading day Delegation possible How can the TR support SFTR reporting (1/3) Direct reporting Counterparty delegation Counterparties report their SFTR flows directly to the TR Difficulties in getting all required data Implementation of the ISO standard Information is asynchronously distributed Clearers, Lenders and Brokers hold lion s share of information Need to demonstrate oversight on Timeliness Quality Count A 3 rd entity A Delegation possible 3 rd entity Trade Repository 3 rd entity B Count B Delegation possible Accuracy A number of key market intermediaries offering end to end SFTR reporting Publish aggregate positions by type of SFT Third party delegation Including data enrichment Reconciliation Potential for better data quality upstream of the TR ESMA Supervisors/Regulators Hybrid Models Market intermediaries also offer assisted reporting where you receive a packaged report to direct to the Trade Repository Even if you opt for end to end intermediated SFTR reporting, you can still have a direct participant account with the TR and receive direct service support from them On demand Transaction Delegated reporting One thing is sure: you remain responsible! How is your data fragmented? Where is it located? Does the cost in maintaining a robust oversight process for your delegated reporting outweigh the benefits of delegation? Do you already have a direct relationship with a TR for EMIR/FinfraG reporting? Do you prefer this direct control? April

12 Reporting profiles How can the TR support SFTR reporting (2/3) Flexible account model fully supporting delegation Market Participants Reporting Participant Direct Counterparty to an SFT transaction Can report on behalf of the other counterparty (partial or full delegation) Clients Non Reporting Entity Reporting delegated to counterparties or third parties Read-only access for everything reported on their behalf, without capacity to send or modify trades Third Parties Reporting Internal Third Party / Reporting External Third Party Reports on behalf of others, but is not a direct counterparty to the trade Third Parties can be within a family group (e.g. parent company, fund manager) or external providers, such as IT vendors, trading platforms or CCPs Possibility to report directly or through Third Party delegation NRE TP RP Reporting Participant : Direct Counterparty to an SFT transaction. Can also report on behalf of its counterparty Internal Third Party / External Third Party : Reports on behalf of others (i.e. Reporting Participant or Non Reporting Entity), but is not a direct counterparty to the trade Non Reporting Entities : read only access to the reported trades by a TP or a RP with counterparty delegation Superuser: read only access to the reported data of specific accounts April

13 How can the TR support SFTR reporting (3/3) What are the main differentiators between the TRs SFT offering? Service quality: Talk to your colleagues to see if they are happy with the service level they receive from the current TR under EMIR regulation Expertise: Has the TR a natural pedigree in the SFT business Account structure: Does the TR offer a flexible account model supporting full and partial delegation or assisted reporting Costs: Although all TRs work on a cost plus basis, we see under EMIR that the fee schedules are very different from one TR to another April

14 Final advice? 01 SFTR Project 02 Business Partners 03 Trade Associations 04 Other Experts 05 RfI / RfP 06 REGIS-TR 07 Social Media Start your SFTR project as soon as possible, engaging the right stakeholders Talk to your business partners and see what they intend to offer for facilitating your SFTR reporting Check out their public consultation responses to get a clear market view of the potential issues Speak to market intermediaries and expert consultants Don t take the TRs at their word, engage them in a proper RfI/RfP process Come to us to discuss our SFTR offering in more detail and get a copy of our generic RfI response Follow REGIS-TR on LinkedIn and Twitter to be amongst the first to read our regular thought leadership and be invited to our industry working groups April

15 Disclaimer "This presentation is prepared for general information purposes only. The information contained herein is not intended to provide professional legal advice and should not be relied upon in that regard. Readers should seek appropriate professional advice where necessary before taking any action based on the information contained in this document. REGIS-TR, S.A. makes no guarantees, representations or warranties and accepts no responsibility or liability as to the accuracy or completeness of the information, and under no circumstances will it be liable for any loss or damage caused by reliance on any opinion, advice or statement made in this document. Information in this document is subject to change without notice." April

16 Contact details Fabian Klar Vice President Business Development Manager REGIS-TR S.A. Phone Mobile fabian.klar@regis-tr.com Website: LinkedIn: REGIS-TR