SFTR “much less complex” than Emir

Europe’s impending Securities Financing Transaction Regulation (SFTR) is “much less complex” than the European Market Infrastructure Regulation (Emir), according to Nikolay Arnaudov, senior policy officer at the European Securities and Markets Authority (Esma).

The comments from the Esma official came after Thomas Donegan, partner at law firm Shearman & Sterling, claimed there had been more consultation with the securities finance industry, which should result in less disruption during SFTR's implementation. 

Speaking on Global Investor Group's web-conference on SFTR, Donegan said: "It’s a much better developed regulation which builds upon EMIR and is more collaborative in its origins."

Arnaudov added: “Emir was a very complex piece of regulation with a lot of aspects which, of course, led to those complexities in its implementation. However, in the case of SFTR, we are much less complex in terms of the impact to the market; it’s only about reporting and transparency."

Despite this, he noted that that the levels of transparency that the European securities watchdog requires has “increased a lot” when compared to what was required in 2012, when Emir was introduced.

Arnaudov stated: “This comes as a result of experience on both sides and the developing requirements of the community. Let’s remember that SFTR came as a result of the financial crisis, but there was also a push from the Financial Stability Board.”

Catherine Talks, product manager at UnaVisata, highlighted that the different pieces of regulation have “definitely evolved and definitely learned from one another”.

“When Emir was started out, it was much greater than just transaction reporting; it was a package of reforms which included best practices, escalation procedures, early confirmation, clearing and it was quite considerable for the derivatives market,” Talks added.

She underlined that when Emir was introduced there was not one standard format, which turned many firms towards delegated reporting, as the buy-side approached their sell-side counterparts and asked them to do their reporting on their behalf, and this led to a number of problems that were not anticipated.

“Namely, the fact that you can delegate the action of reporting but you cannot delegate your obligation of reporting. So, those firms did not have the onus of transaction reporting, but they did have to reconcile, and they found that their reports were fragmented as they traded with more than one counterparty,” Talks explained.

SFTR, however, has taken influence from the Markets in Financial Instruments Regulation (Mifir) and from Emir, as Talks highlighted that participants have to report to a trade repository, as with Emir, and the regime uses an XML schema as seen with Mifir.

“Firms are saying they learnt as they went along, and they do not want a fragmented approach; they want to do something differently. We are seeing more and more vendors enter into the space and firms are engaging with vendors to try and consolidate their reporting and report themselves using a vendor facility,” she concluded.

The first phase of Europe’s stock loan and repo reporting rules, originally due to go live on April 11, has been delayed until July 13, when the second phase will be introduced, due to the Covid-19 pandemic.

Trade bodies had urged ESMA to reconsider extending SFTR’s April go-live date to October and it acknowledged on March 19 that the Covid-19 outbreak was putting immense pressure on the industry to remain compliant in time.

A full recording of the SFTR webinar will be available online at GlobalInvestorGroup.com from May 6.