Europe Nears Securities Financing Regulation

Europe is set to finalise new rules for the reporting of securities financing transactions in a bid to enhance transparency in the so-called “shadow banking” sector.

On Wednesday the European Commission, European Parliament and Council of the EU came to an agreement on the Securities Financing Transaction Regulation (SFTR), and a formal adoption of the proposed rules will come into force later this year.

“Today’s agreement is an important step forward in bringing transparency in securities financing markets,” says Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union.

“These activities are important for the financing of the economy and the right kind of oversight will make it easier to monitor and assess the risks involved.”

These transactions, such as repurchase agreements (repo) and securities lending, allow banks and fund managers to access secured financing by temporarily exchanging securities as a guarantee for funding a trade.

Europe will be the first region to adopt reporting rules of securities finance transactions. The Financial Stability Board (FSB), led by Mark Carney, governor of the Bank of England, is planning to finalise a regulatory framework for haircuts on securities financing and reporting.