European Securities and Markets Authority Publishes Clarifications on Reporting of Securities Financing Transactions

The European Securities and Markets Authority has published a final report and guidelines on reporting under the Securities Financing Transaction Regulations, together with amended SFTR validation rules and a statement on Legal Entity Identifiers. The SFTR requires all securities financing transactions to be reported to EU-recognized trade repositories. SFTs involve the use of securities to borrow cash or other high investment-grade securities and include repurchase transactions, securities lending and sell/buy backs. In 2019, ESMA proposed guidelines on the reporting of such transactions to ensure consistent implementation of the SFTR requirements. The SFTR also mandates the use of LEIs to identify entities undertaking SFTs. ESMA’s LEI statement sets out certain actions ESMA intends to take with respect to LEIs for SFTs.
 
EMSA’s final report and guidelines on reporting under the SFTR follow its May 2019 consultation on its proposed guidelines, which are intended to provide market participants with further guidance on the implementation of the SFTR reporting requirements, to complement the technical standards that are already in place. The final report includes an assessment of the feedback ESMA received to its consultation on the proposed guidelines. In particular, ESMA clarifies that SFTs used for operational and/or industrial purposes do not fall within the scope of SFTR reporting, as these do not have a financing purpose so do not contribute to the systemic risk that the SFTR is designed to address. Transactions involving emissions allowances are also deemed to be out of scope of the SFTR reporting obligations, as they are not considered a commodity but rather a financial instrument under the Markets in Financial Instruments Directive. Commodity forwards, however, are in scope if the commodities are purchased by the buyer from the seller on the spot leg and sold to the seller by the buyer on a set date against a set price on the forward leg. The final guidelines provide clarification on a number of the SFTR provisions, including general principles such as the reporting start date and number of reportable SFTs, as well as practical guidance on how to comply with the reporting requirements, for instance the SFTR tables of data fields that should form the basis of reports. ESMA has also published updated SFTR validation rules, which set out technical standards for completing the data fields required for each type of SFT report.
 
The SFT reporting obligation under the SFTR, which comes into force on April 13, 2020, requires the correct reporting of valid LEIs for parties to SFTs. ESMA’s LEI statement makes clear that the correct reporting of LEI codes is key to the efficiency and usefulness of information reporting on SFTs, but acknowledges that many third-country entities will not have LEIs by the time the SFTR reporting obligations come into force. Therefore, ESMA highlights that it does not expect competent authorities to prioritize supervisory actions against those who fail to report the LEIs of third-country issuers. Instead, ESMA is accepting, for a period of up to 12 months commencing on April 13, 2020, reports that do not contain the LEIs of third-country issuers. The temporary measure will remain in place until April 13, 2021.
 
View ESMA's final report.
 
View ESMA's guidelines on reporting under SFTR.
 
View ESMA's statement on Legal Entity Identifiers.
 
View details of ESMA's May 2019 consultation on its proposed guidelines.
 
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