ESMA offers details on SFTR implementation

ESMA has published a report providing details for implementing SFTR.
By Paul Walsh
The European Securities and Markets Authority (ESMA) has published a report on standards implementing the Securities Finance Transaction Regulation (SFTR).

The report outlines provisions on securities finance transactions (SFTs) reporting, data collection and availability as well as access for different public authorities and registration details for trade repositories.

Implemented in July 2016, SFTR rules bind all current and future transfer and security collateral arrangements to a variety of financial agreements.

These include all parties that accept collateral informing their counterparties of relevant risks involved in entering a title transfer arrangement or granting a right to reuse collateral under a security arrangement.

SFTR had been designed to improve transparency of collateral reuse in the wake of the financial crisis which had seen collateral reuse drop.

Earlier this year the Financial Stability Board (FSB) expressed concerns that the reuse of collateral could pose issues for financial stability.

The ESMA report states that collateral is usually managed on a portfolio basis, rather than at transaction-level resulting in pooling the available assets often without tracking their source.

In response to this ESMA states that “reuse data should be reported in a separate template linked to the respective legal entity.”

In addition it states “further linking of reuse to individual SFTs could be made by authorities making use of International Securities Identification Number (ISIN) of the reused securities.”

ESMA is also advocating that the reporting of collateral reuse should take place “on a daily basis.”

As well as these amendments, ESMA is also proposing various amendments to EMIR and other EU-wide reporting regimes “in order to align reporting standards to the maximum extent possible.”

ESMA also confirmed it has sent its final draft technical standards under SFTR and amended standards under EMIR to for endorsement to the European commission which has three months to decided whether or not to endorse them.

The SFTR implementing measures are expected to come into force by the end of 2017.
“Bringing transparency and oversight into the multi-trillion euro market of securities financing transactions is an important step in closing a regulatory gap,” said ESMA chair Steven Maijoor.

“It is pivotal for financial stability that the risks associated with non-bank alternative credit provision are properly addressed.

“The SFTR will provide transparency on the use of securities financing transactions, and will allow identifying risks associated with the collateral and its reuse,” Maijoor added.