The third and final requirement of the Securities Financing Transaction Regulation (SFTR), SFTR Reporting comes into force next July. CACEIS offers its clients a turnkey solution for the delegation of this particularly complex reporting duty.
The SFTR reporting applies to any counterparty, financial or non-financial, involved in a securities financing transaction (or SFT) in the European Union, as well as to UCITS and FIAs. The transactions covered are repo transactions, securities and commodities lending and borrowing, buy-sell-back and sell-buy-back transactions and margin lending.
The reporting obligation, which was planned to be phased-in depending on the type of counterparty, has been postponed for credit institutions and investment companies until 13th July due to the Covid-19 pandemic. Security depositories and central counterparties will also have to comply with this requirement by that date. The vast majority of CACEIS' clients, i.e. insurance companies, management companies and pension funds, will have to submit their first report on 12th October. Finally, it will be up to non-financial counterparties, including corporates, to complete the reporting obligation on 11th January 2021.
This new report is one of the most complex ever required from the securities industry because of the frequency of submission and the high volume of data to be transmitted. Indeed, for each SFT transaction, modification or change in the contract, regardless of the instrument affected, reporting must be carried out within extremely short deadlines, no later than D+1 of the event. In addition, 155 information fields must be completed and distributed in four subparts. The LEI (Legal Entity Identifier) and the UTI (Unique Transaction Identifier) also become mandatory information. Finally, the details of the collateral allocated to the transaction must be reported to the Trade Repository (TR) at the level of each LEI before the end of the business day following the settlement of the Securities.
As with EMIR, the SFTR reporting is sent to a Trade Repository or central repository. "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. The Trade Repository then makes this information available to regulators.
CACEIS, drawing on its expertise in regulatory reporting obligations such as EMIR and its mastery of operational issues, prepared itself over several months by integrating the complexity of the technical and operational components. Significant resources were mobilised, both human and technical, to ensure strong collaboration between data providers and platforms and to set up a robust, high-quality production chain. The impacts of SFTR settlement are also greater because the level of automation in securities financing operations is lower (bilateral trading, manual processes, etc.) than in other market activities (e.g. derivatives). CACEIS has all the necessary infrastructure to collect data from several trading platforms, aggregate and enrich it in order to extract the required reporting.
CACEIS' reporting delegation offer includes setting up the operational system with the client, data management and reconciliation, reporting to the TR and reporting to the client. When setting up the operational system, CACEIS will agree with the client on the process for generating and/or sharing the UTI.
"This offer is aimed at clients who entrust us with the middle-office (transactional and collateral management) of their securities lending and Repo operations; they can thus rely on delegated reporting, based on a reliable and high-quality process, to the competent authorities", adds Kais Haj Taieb. Many asset management companies and institutional investors will opt to outsource the production of this highly complex reporting.
"We will be in a position to produce the first reports as early as next July on behalf of our group, and our broker and banking clients who have delegated production to us," confirms Kais Haj Taieb.