The final technical standards specifying the details of the extensive reporting regime for repos and other securities financing transactions (SFTs) to be introduced by the EU SFT Regulation (SFTR) are still being reviewed by the European Commission.
Following some delay in the process, approval of the standards by the Commission is now expected to happen in April or May this year. Subsequently both Council and European Parliament will have another opportunity to review the proposals. Only once these are formally adopted and published a 12-month transition period will start ahead of the actual reporting “go-live” for banks.
Overall, we currently expect that the reporting will probably begin in Q3 2019 for banks and investment firms and a few months later for other market participants. This gives the industry a bit more than a year to prepare implementation, which is not a lot of time considering the scale of the challenge. Given the extent of the information required, the SFTR is expected to change the way repos and other SFTs are traded and processed today.
The ICMA European Repo and Collateral Council (ERCC) is driving the industry’s implementation work in relation to repo through its SFTR Task Force. The SFTR Task Force is a cross-industry group, covering users, trade repositories and other service providers. The rapidly increasing number of members since the start of this year clearly indicates a growing awareness in the industry of the task ahead and a shift of resources away from MiFID II/R towards SFTR.
In terms of priorities for the group, the key focus at this stage remains on the bilateral SFTR reconciliation exercise for repo and buy/sell-back trades launched by the ERCC SFTR Task Force in June 2017. While progress in relation to this initiative has been initially rather slow, the project has more recently gained significant momentum, also thanks to the vendors represented in the group who have started to be involved.
Solutions provided by vendors have reduced significantly the burden for users to participate and have therefore helped to get more firms on board. Feedback from the reconciliation exercise is expected over the next few weeks and will help to inform the work of the Task Force going forward by highlighting the key pain points in relation to SFTR which need to be tackled through common definitions and market practices.
This article was written by Alexander Westphal, Director - Market Practice and Regulatory Policy, International Capital Market Association (ICMA). It appeared as part of ICMA's Second Quarter 2018 report.