SFTs include repurchase, lending/borrowing, buy-sell back and sell-buy back transactions. Total return swaps are also included because they have similar impacts to SFTs in terms of risk.
The regulation affects all counterparties to SFTs headquartered in the EU, all branches of such counterparties (regardless of their domicile), all European branches of counterparties headquartered in a third country, as well as UCITS and AIFs.
It defines three categories of obligation, scheduled to enter into force between 12th January 2016 and October 2018 (provisional date).
REPORTING OBLIGATIONS AND SAFEGUARDING OF TRANSACTIONS
From 12th January 2016, a record of each SFT must be kept for at least five years after its maturity date. CACEIS' data conservation policy complies with this new requirement. The RTS on the reporting obligation, which ESMA planned to publish by 13th January 2017 at the latest, have been postponed. As a result, it is highly likely that the progressive implementation schedule anticipated initially (January 2018 – October 2018) for SFT reporting by counterparties to approved repositories will also be postponed.
CACEIS is closely monitoring developments in this regard to ensure we are able to support clients that conduct SFTs.
DISCLOSURE AND TRANSPARENCY OBLIGATIONS TOWARDS INVESTORS
From 12th January 2016, all new mutual funds must disclose authorised SFTs policy in their pre-contractual information documents. UCIs created prior to 12th January 2016 have until 13th July 2017 to comply.
CACEIS legal teams assist clients to update their information documents.
From 13th January 2017, information regarding SFTs, TRSs (Total Return Swaps) and counterparties must appear in the notes to the annual financial statements of all types of UCI, as well as in semiannual financial statements produced by UCITS.
CACEIS teams have taken part in a number of working groups in the main countries where they are present, with a view to creating an SFTR model, compliant with local requirements to be used in the notes to financial statements.
TRANSPARENCY OBLIGATIONS REGARDING THE REUSE OF SECURITIES RECEIVED AS COLLATERAL
From 13th July 2016, counterparties providing collateral must have been duly informed of the risks and consequences linked to authorising the reuse of the collateral under a securities collateral arrangement or entering into a title transfer collateral agreement. They must formally agree to conduct this type of transaction.
Since spring 2016, CACEIS legal teams drafted a disclosure letter for counterparties, formalised the new clauses regarding collateral arrangements and helped clients to comply with global master securities lending agreements (GMSLAs).
CACEIS will keep clients updated on any new developments regarding SFTR.