SF TR Reporting
SFTR: forget the noise - its about reporting
A view of the forthcoming regulation by Dean Bruyns of Broadridge
First and foremost, the Securities Financing Transactions
Regulation (SFTR) is a reporting obligation. The consequences
for non-reporting are very real and should be ignored at your
peril. Significant fines imposed under the second Markets in
Financial Instruments Directive (MiFID II) and more recently with
the European Markets Infrastructure Regulation, have brought this
into razor-sharp focus. Be very sure that your SFTR reporting team
has the experience and tools to deliver.
Now this is not about scaremongering. It’s about considering
individual responsibilities, leveraging opportunities and adopting
a sensible approach to balancing the books while achieving
The International Securities Lending Association, the International
Capital Markets Association and other industry bodies are taking
the lead by establishing working groups to deal with SFTR.
Within this context, market players have assumed their collective
responsibilities and contributed admirably in supporting these
initiatives and helping flesh out the issues.
One of the strengths of the securities finance industry is the
collegiate-style sense of camaraderie and the market has certainly
rallied together to get to grips with the new regulation. The danger
however lies when the will of the most vocal prevails and some
players get side-tracked by factors which are actually unrelated to
compliance with the regulation.
Focus on the fundamentals
The concept of business as usual when new regulations intrude
can provide a real challenge. The default settings tend to lie at both
ends of the spectrum depending on the nature of the personnel
within the business.
Some parties adopt a “wait and see” approach. Others may
even take on more than their mandated responsibility and
end up duplicating other participants’ obligations at their
own expense, only to find themselves over-committed and
The ongoing costs of meeting regulatory compliance are
not insignificant and the balance between your mandated
responsibilities within SFTR and establishing what is surplus to
your requirements must be carefully considered.
Reap the associated benefits
There are, however, benefits which can be leveraged from a
regulatory project and these must be realised to partially offset the
costs of SFTR to businesses.
An example is concisely summarised in ‘The Cost Benefit Analysis’
conducted by Economics Europe, annexed to the European and
Securities Markets Authority's final regulatory technical standards
on the trade repositories’s (TR) mandatory obligations.
One such TR obligation, which provides a powerful benefit to
counterparties, is in respect of their mandated reconciliation feedback:
“TRs should provide to the reporting counterparties (or other
authorised counterparties) feedback messages as to whether
the securities financing transactions is reconciled or not. If it is
not reconciled, then TRs should detail the relevant data elements
where reconciliation breaks take place and provide both parties’
This clearly represents an enormous benefit for counterparties.
The TR essentially does the heavy lifting and reconciles loan
and collateral data, comparing submissions in the first instance,
pointing out discrepancies, providing both values and allowing
counterparties the opportunity to reconcile the exceptions and then
re-submit their reports.
Reconciling exceptions rather than the entire dataset provides
obvious benefits from an operational resource perspective and
essentially gets you a strong return on investment with respect to
your unavoidable TR fees. Leverage this.
Oversight and data lineage
The UK’s Financial Conduct Authority recently highlighted the
importance of oversight in its assessment of a regulatory reporting
fine for another jurisdiction, flagging the lack of it, as a contributing
factor to the severity of the fine.
This validates the emphasis that the regulator is placing on
operational and compliance oversight in relation to reporting, so
counterparties must take note if they want to stay on the right side
of the regulator. Mitigating fragmentation risk by consolidating
reporting into a single, centralised hub, will go a long way in
simplifying oversight for more secure control.
In addition, the ability to reconcile reports from the TR back to
source, justifying the reporting or non-reporting of trades, the
reasons therefore and any amendments thereto throughout the
lifecycle must be understood and evidenced to the regulators if
Operational visibility within a dashboard or graphical user interface
should be easy to interpret and include powerful data lineage
functionality, in order to be considered fully fit for purpose.
Counterparties should consider this as a priority if building in-
house, or demand it from their specialist reporting supplier.
Bear in mind, the ultimate responsibility for reporting lies with
the counterparties involved in the trade. Understanding your data
lineage internally holds the key to controlling this.
The Economist: “The world’s most valuable resource is no longer
oil, but data.”
There are several variations of that headline so it’s clearly big
news and with new regulations like the General Data Protection
Regulation (GDPR) coming into play, all counterparties are well-
advised to consider how they treat their data confidentiality.
Data sharing is obviously unavoidable when it comes to reporting
but this access is strictly controlled at the TR. Beyond your
mandatory obligations you should carefully consider whom you
share your data with and also how you realise the benefits from
your new SFTR data resource.
Clearly data control is retained when reporting in-house or via an
installed on-premise reporting solution. Similarly, CSDs provide a
trusted and natural data depository. Before relinquishing control
to any hosted solution provider, ensure that you have complete
confidence that your data will be properly respected and controlled
within its environments. In short, data control must always be given
thorough due diligence in the SFTR decision making process.
Business edge - reporting certainty
Responsible reporting businesses will be the winners post-SFTR
go-live. There will be little patience extended to counterparties
who are inefficient and slow to cooperate with timely
Successful implementation demands a team performance from all
market participants and any weak links will soon be relegated to the
bench and leak market share. There will no doubt be challenges that
will take time to iron out. However, beyond any initial grace period,
should there be one, players will have to step up and perform.
Performance requires prudent decision making. Choosing
your reporting team wisely. Are they experts in their field? Is
your in-house knowledge base sufficient? Have you given due
Responsible reporting businesses will be
the winners post-SFTR go-live p 5
Securities Lending Times
consideration to improving agency lending disclosure and bilateral
legal negotiations if you decide to trigger step one?
Beyond go-live, performance requires booking trades quickly and
accurately, sharing trade details efficiently, submitting reports on
time, acting on TR rejections promptly and reconciling feedback
Everybody has their function, which must be fulfilled for
the regulation to work. CCPs, trading venues, matching and
confirmation platforms alike must follow their regulatory
mandates in respect of factors like unique trade identifier
code generation and the timely sharing thereof. Firms ignoring
this should expect a robust response from the regulators and
risk reputational damage from within the securities finance
community. So report responsibly, fulfil your function, avoid
duplication and gain an edge.
Commercial flexibility, agility and independence
Albert Einstein: “The measure of intelligence is the ability to change.”
Retaining agility in the face of future SFTR revisions and the
addition of new jurisdictions is a massive consideration. The ability
to change, whether out of necessity or to embrace opportunity, is a
major factor for market players to consider.
Change becomes easier when solutions are abstraction layers
within the businesses infrastructure, allowing for seamless
integration and business continuity with minimal disruption
and flexibility when it’s time to adapt. Reaching that status and
embracing change requires bold decision making, stepping out of a
comfort zone and opting for quality over familiarity.
Choosing best-of-breed solutions for their unique specialities is key
to building a strong team around the core business, in whatever
capacity they contribute. It also allows for easy extrication if the
relationship sours, or if new and improved opportunities arise.
Retaining that agility and independence keeps the power base
where it belongs. SLT