Published on 08.07.2024

SFTR Reporting – Securities Financing Transactions Regulation

Introduction to Securities Financing Transactions Regulation

Starting from July 13, 2020, investment firms have had the obligation to report Securities Financing Transactions (SFTs) to an authorised Trade Repository (TR) according to Article 4 of the Securities Financing Transactions Regulation (SFTR). Following Brexit, the regulations from the EU have been incorporated into UK legislation as UK SFTR under the European Union (Withdrawal) Act 2018. For clarity, on this platform, SFTR encompasses both the EU and UK versions of the regulation unless stated otherwise.

Snapshot of SFTR Requirements:

SFTR focuses on various securities financing transactions (SFTs) including repurchase transactions (REPO), securities or commodities lending and borrowing, buy-sell back transactions, and margin lending transactions.

Reporting obligations mandate all investment firms to report SFTs to an authorised Trade Repository (TR) to increase transparency in securities financing markets.

Who Does SFTR Affect?

Investment firms need to ensure compliance with reporting obligations, including the submission of details of all SFTs to European Securities and Markets Authority (ESMA) via a TR.

Non-financial counterparties (except NFC-) must comply with reporting obligations as per the specified dates.

What is SFTR?:

Securities Financing Transactions Regulation (SFTR) is a financial sector regulation in the UK and EU aimed at enhancing transparency in SFTs to mitigate risks to financial stability.

Key Features of SFTR:

Mandates reporting of various SFTs to ESMA via a TR.
Requires reporting of up to 155 fields depending on the product.
Specifies counterparty, loan & collateral, margin & re-use tables for reporting.
Encompasses nine reportable action types.
Includes reconciliation of up to 48 fields initially, increasing to 74 after two years.
Implements common standards such as ISIN, LEI, UTI, CFI, along with extensive classification field requirements.
Identifies beneficial owners and emphasises reconciliation sensitivity around execution timestamps.

Unique Product Identifiers (UPIs) and Unique Trade Identifiers (UTIs):

SFTR mandates the use of UPIs and UTIs for unique identification and standardisation of reported data, ensuring accuracy and compliance with reporting requirements.

In summary

SFTR aims to improve transparency in securities financing markets by imposing comprehensive reporting requirements, which encompass various types of SFTs involving both financial and non-financial counterparties. These reporting obligations mandate investment firms to submit details of SFTs to authorised Trade Repositories (TRs).

The reporting process entails providing extensive information, with up to 155 fields required depending on the product. This includes data on counterparties, loans, collateral, margins, and action types.

SFTR also imposes standards for reconciliation and identification, necessitating adherence to common protocols like ISIN, LEI, UTI, and CFI. Additionally, it mandates the reconciliation of up to 48 fields initially, with this figure increasing to 74 after two years, to ensure accurate pairing and matching, with particular emphasis on execution timestamps.

Entities subject to SFTR reporting obligations include financial counterparties and specific non-financial counterparties, excluding small NFCs. This encompasses EU-based entities and non-EU entities conducting SFTs through an EU-based branch. Notably, both the EU and UK versions of SFTR are currently enforced, with the UK version gradually diverging as updates are made by the Financial Conduct Authority (FCA).