If 2017 was the year of MiFIR, with the January 3rd, 2018 deadline looming over everyone’s head, then the same could be said for SFTR in 2018.
The MiFID II deadline was extended by a full year, primarily because it was substantially different from existing MIFID Reporting, but most firms we talk with expect the April 2019 SFTR deadline will stick and not be extended, primarily because SFTR is similar to EMIR transaction reporting, albeit with key differences. Given that we’re already into Q2 2018, there’s not a lot of time left to plan, test and implement.
What to do first?
Risk Focus is already in conversations with investment firms regarding the first steps towards compliance. First and foremost, firms must start by assessing whether or not they will be impacted by SFTR at all. Borrowing from the words of the regulation itself, every firm should be able to answer the following two questions: “1. Do we, or any of our clients who have delegated reporting to us, engage in Repurchase Agreements (Repos), Securities Lending/Borrowing, Commodities Lending/Borrowing, Buy/Sell back, and/or Sell/Buy Back Transactions, as well as ‘reuse’ of collateral?” If so, then “2. are we or any of our clients an EU counterparty and if not, do we or our delegated clients engage in any of the transaction types listed above with EU branches of counterparties?” If the answer to any part of the second question is “yes”, then you know you will be impacted and will need to prepare to comply!
If you got to this part of our post, then chances are you have figured out that your firm will need to comply with SFTR. While you’re waiting for the compliance date to be finalized, there are several activities that can start immediately, especially when it comes to organizing your data. First, you should assign a team member to study the Technical Standards, otherwise referred to as the RTS. In the RTS you will find that the data is organized into four tables: Counterparty Data, Loan and Collateral Data, Margin Data, and Re-use, Cash Reinvestment and Funding Sources Data. We are already working with clients to get these four categories of data in order, so that the proper kickoff of a development phase won’t be hindered by incomplete or incorrect data.
To date, most of our SFTR-related engagements are “Health Checks”. Financial institutions bring us in to assess their overall data quality and the reporting eligibility of their positions, from which we make recommendations. Depending on what is found during the Health Check, Advisory, Architecture, and Implementation engagements can follow, which was the case for MiFIR and G20 Reporting regulations.