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Outsourcing SFTR reporting to CACEIS

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A provision of Securities Financing Transaction Regulation (SFTR) published in 2016: the SFTR reporting comes into force in July 2020. SFT transactions will be declared on an ongoing basis.

The scope of the regulation is broad; it is aimed at counterparties, financial or non financial, involved in an SFT transaction in the European Union, as well as to UCITS and AIFs (alternative investment funds).

The transactions covered are the following: repurchase agreement, securities and commodities lending and borrowing, buy-sell back and sell-buy back transactions and margin lending transactions.

SFTR Regulation provides that, on an ongoing basis, the SFT transactions carried out by each counterparty are to be reported. This is one of the most complex reporting obligations ever requested from the securities industry participants due to the enormous volume of data to be transmitted.

Indeed, more than 153 information fields are to be filled out, with a division into four sub-sections: data relating to SFT transactions, data relating to securities used as collateral, data relating to margin calls and general data relating to counterparties.

The LEI (Legal Entity Identifier) and the UTI (Unique Transaction Identifier) must be used and reported. For each transaction, modification or change in the contract, regardless of the instrument impacted, reporting must be carried out within an extremely short period of time, generally no later than D+1 after the event.

Kais Haj TaiebSimilar to EMIR, reporting must be submitted to a Trade Repository (TR). "The concept relies on double reporting, i.e. both counterparties to the transaction must report. However, they may agree to delegate this reporting to the other counterparty or to a third party,"says Kais Haj Taieb, Group Product Manager.

Trade Repositories must then forward this information to the relevant regulators.

The reporting obligation comes into force in July 2020, and will be phased-in depending on the type of counterparty: on 13th July for credit institutions and investment companies, for securities depositaries and central counterparties, on 12th October for insurance companies, pension funds and management companies, and lastly on 11th January 2021 for non-financial counterparties.

While the SFTR report is neither new nor unique from a reporting point of view, its production is challenging due to the large volume of data required and the exceptionally short deadlines.

To cope with this complexity, it is necessary to rally significant resources, whether human or technical, to ensure efficient connectivity with data providers and to set up a robust and high-quality production chain, much in the likes of the MiFID II set up.

However, the impacts of the SFTR regulation are greater because the level of automation of securities financing operations is somewhat lower (bilateral trading, manual processes, etc.) than in other market activities (derivatives for example).

Note that the penalty in the event of a reporting breach could amount to up to €5 million, or 10% of an-nual turnover.

As a result, many management companies and institutional investors are likely to outsource the pro-duction of this complex reporting obligation.

CACEIS, benefitting from its expertise in regulatory reporting obligations such as EMIR and MiFID and its expertise in operational is-sues, is finalising the implementation of SFTR reporting.

"Our Group will carry out the report production as a financial institution but also on behalf of clients who wish to delegate its production. CACEIS has all the necessary infrastructure to collect data from trading platforms to aggregate and enrich them in order to generate the required reports", explains Kais Haj Taieb.

"Clients will thus be able to rely on delegated reporting, based on a reliable and high quality process for the relevant authorities," adds Kais Haj Taieb.