Following the release of the technical standards on Securities Financing Transaction Regulation (SFTR) transaction reporting on March 20, 2019, in-scope firms – including credit institutions and investment firms – will need to comply with reporting obligations that come into force on April 13, 2020.
Under the new requirements, issued by the European Union (EU), any European Economic Area (EEA) firms that trade securities financing transactions (SFTs) will have to report daily transition, valuation, collateral, reinvestment, funding and collateral re-use information to an approved repository. Recent penalties issued by the regulators for breach of other reporting transaction requirements suggest the market is struggling to understand regulatory requirements, and/or to implement a suitable solution.
As firms prepare themselves for impending SFTR reporting requirements, there are some common mistakes they should be careful to avoid.
Mistake #1 – Not thoroughly assessing the obligations of SFTR. This may seem obvious, but the devil really is in the detail. Whether assessing their classification, understanding the execution model, designating the reporting entity or considering reporting of collateral re-use information, firms must fully understand every nuance of SFTR to ensure nothing is overlooked.
Mistake #2 – Underestimating the impact of data fragmentation. Securities financing markets are less automated than listed and cleared derivatives markets, which presents a challenge when it comes to data. Receiving accurate and timely data from third parties in a transaction is essential, but this data also needs to be fully standardized, to avoid unpaired and un-reconciled transactions at trade repositories.
Mistake #3 – Thinking tactically, but not strategically. Achieving regulatory compliance cannot be approached as a purely tactical exercise. Firms need to make bold strategic decisions if they are to successfully implement a solution that fully handles SFTR compliance. For most firms, the potential outcome of non-compliance should provide more than enough justification for such a project.
Mistake #4 – Taking a “fire and forget” approach. Implementing a transaction reporting solution is a complex project that will need to include a change management program. Properly structuring the delivery team and providing sufficient resources is a great start. But the work doesn’t finish upon go-live, and there needs to be a strategy to continuously oversee, maintain and improve the process.
Mistake #5 – Ignoring the value of periodic quality assurance. Firms that delegate reporting to a counterparty or a third party do not delegate the fundamental responsibility. The burden of regulatory compliance sits squarely with the in-scope firm in the eyes of the regulators. To ensure they have the oversight and control of their own compliance, no matter which entity undertakes the associated tasks, firms must implement a strict periodic assurance process and ensure they can provide on-demand evidence of compliance when requested.
How can SS&C help firms to implement a robust transaction reporting solution?
SS&C offers a multi-jurisdictional transaction, valuation and collateral reporting service under the G20 reporting regulation (EMIR, MAS, FMIA and ASIC), MiFIR transaction reporting and SFTR transaction reporting services. SS&C reports on behalf of 400+ legal entities to multiple trade repositories and approved reporting mechanisms (ARMs). SS&C reports approximately 350,000 transactions messages daily to multiple trade repositories, and over 100,000 transactions messages daily to an ARM.
Offering one centralized hub for multiple regulations, SS&C provides ultimate flexibility and full transparency. SS&C’s strength is in normalizing, enriching, reformatting and reconciling the data to create a robust database with enhanced information of any trade, implementing the solution with minimal impact to the business. SS&C supports reconciliation with the national competent authority and provides a detailed and comprehensive monthly assurance process. SS&C's regulatory transaction reporting offers a web portal allowing our clients to access the necessary data, calculations, control and output for their internal review to assess the status, completeness and accuracy of the reporting solution.
Asset Management, EMEA, Fund Administration, Regulation