Shearman & Sterling LLP | FinReg | Financial Stability Board Delays Implementation Deadlines for Minimum Haircut Standards for Uncleared SFTs
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  • Financial Stability Board Delays Implementation Deadlines for Minimum Haircut Standards for Uncleared SFTs
    07/19/2019
    The Financial Stability Board has extended the implementation timelines for its recommendations on securities financing transactions, in particular those on minimum haircut standards for uncleared SFTs. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The FSB published, in 2015, its regulatory framework and recommendations for haircuts on uncleared SFTs, which included timelines for the implementation of the recommendations by FSB member jurisdictions. The FSB notes that while progress is being made in implementing the recommendations, many jurisdictions have not yet done so. The FSB acknowledges that most of the delay is due to the new date for implementing the Basel III framework, including the minimum haircut standards on bank-to-non-bank SFTs, which was postponed to January 2022. The FSB's revised implementation dates are:
    • January 2022: recommendation 14 - the framework of numerical haircut floors (original deadline was the end of 2018);
    • January 2024: recommendation 15 - framework of numerical haircut floors on non-bank-to-non-bank transactions (original deadline was the end of 2018);
    • January 2021: recommendation 16 - conducting an initial assessment of the need and the implementation approach for introducing the framework of numerical haircut floors on non-bank-to-non-bank transactions (original deadline was the end of 2016);
    • January 2023 onwards: recommendation 17 - FSB assessment of the implementation of the framework of numerical haircut floors, including considering whether to amend the framework, its scope and levels (original deadline was the end of 2018 onwards); and
    • January 2022: recommendation 18 - FSB to establish monitoring process and to review the national implementation of the framework of numerical haircut floors (the review to be conducted in 2022) (original deadline was 2017 and 2018 respectively).

    The EU SFTR requires, among other things, that all SFTs executed by EU persons be reported to EU-recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to both Financial Counterparties and Non-Financial Counterparties, subject to exceptions for central banks and similar bodies and will be phased in according to type of entity:
    • banks and investment firms from April 11, 2020;
    • CCPs and central securities depositories from July 11, 2020;
    • other FCs from October 11, 2020; and
    • NFCs from January 11, 2021.

    In October 2017, the European Commission assessed steps taken to implement the FSB's standards and came to the view that the potential introduction of numerical haircut floors should be evaluated once detailed data on the SFT markets is available, in addition to considering the steps taken in other jurisdictions because the introduction of any numerical haircut floors should be globally coordinated.

    View the FSB's announcement.

    View the updated annexes to the 2015 recommendations.

    View details of the FSB's 2015 recommendations.

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