Shearman & Sterling LLP | Financial Regulatory Developments Focus | EU Disagreement on EU Technical Standards for Reporting of Securities Financing Transactions
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  • EU Disagreement on EU Technical Standards for Reporting of Securities Financing Transactions
    09/05/2018
    The European Securities and Markets Authority has published an Opinion on the European Commission's proposed amendments to the final draft Implementing and Regulatory Technical Standards on reporting under the Securities Financing Transactions Regulation. Various parts of the SFTR came into effect on January 12, 2016. However, the new reporting obligation for SFTs is not yet in force. Securities financing transactions 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 SFTR requires, amongst other things, all securities financing transactions to 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 financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.

    On March 30, 2017, ESMA submitted its final draft RTS and ITS on the reporting obligation for the SFTR to the European Commission for endorsement. The final draft technical standards included provisions mandating the use of future industry standards on legal entity identifiers for branches and unique trade identifiers for transactions for reporting to trade repositories once the standards had been endorsed by ESMA. The provisions followed the approach to capturing expected forthcoming developments under the European Market Infrastructure Regulation.

    On July 24, 2018, the Commission informed ESMA by letter that it intended to endorse the draft RTS and ITS with amendments. The Commission proposes to remove from the technical standards the references to "endorsements by ESMA" of potentially forthcoming industry standards. The proposed amendments would ensure that any changes to the SFTR reporting obligation as a result of industry standards would need to be made through the full EU legislative process instead of ESMA "endorsing" such standards. In addition, the Commission has also requested ESMA to submit proposed amendments to the ITS on the reporting requirements under EMIR to align the procedure for incorporating future industry standards with the Commission's approach under the SFTR.

    ESMA's Opinion states that the Authority does not agree with the Commission's proposed amendments to the SFTR reporting technical standards. ESMA's view is that the Commission's proposed amendments would: (i) prevent ESMA from taking into account international developments and reporting standards agreed at global level; (ii) create the risk that the EU reporting requirements would not be implemented in parallel with international reporting standards; and (iii) not provide legal certainty or predictability. ESMA also notes that the EMIR reporting standards have already been agreed upon by the Commission, the European Parliament and the Council of the European Union. On that basis, ESMA requests the Commission to adopt the SFTR reporting technical standards in the original form in which they were submitted by ESMA in March 2017.

    View ESMA's Opinion and the Commission's letter.

    View the final draft technical standards submitted by ESMA.

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