What is the SFTR Reporting Obligation?
The Securities Financing Transactions Regulation (SFTR) is the EU’s regulatory response to the Financial Stability Board’s policy proposals for greater transparency. The main SFTR articles are:
- Article 15: Reuse of collateral
- Articles 13 and 14: Transparency of SFTs for investors
- Article 4: Reporting of trades and collateral to Trade Repositories
The scope of SFTR includes market participants located within the EU, their branches outside the EU and EU branches of non-EU participants.
SFTR has applied in the EU since January 2016, with the obligations under Articles 13, 14 and 15 already in force. The reporting obligation under Article 4 requires all in-scope entities to report SFTs to a trade repository on a T+1 basis, and is the final obligation to take effect. It will be phased in over a nine-month from April 2020.
- Apr. 2020: Investment firms and credit institutions start reporting
- Jul. 2020: CSDs and CCPs start reporting
- Oct. 2020: All other FCs (incl. UCITS and AIFs) and third country entities start reporting
- Jan. 2021: NFCs start reporting
Reporting Reprieve for Non-EU AIFs
In January 2020, the Alternative Investment Management Association (AIMA) submitted a letter to the EC and ESMA regarding the scope of SFTR for non-EU AIFs. Responses provided by both confirmed that:
“Non-EU AIFs (i.e. AIFs not established in the Union), are not subject to the obligations set out in Article 4(1) SFTR, even if the AIFM is authorised or registered in accordance with Directive 2011/61/EU, except in respect of SFTs concluded in the course of the operations of a branch in the Union of the Non-EU AIF.”
This means that non-EU AIFs who had expected to be in-scope for the SFTR reporting obligation (i.e. those with EU AIFMs), are no longer required to report. The only exception is where those non-EU AIFs conclude SFTs through an EU-based branch.
So, what next?
For relevant non-EU AIFs there is nothing to do: ESMA’s response confirms that they are out of scope and can therefore avoid the expense and technology build that would otherwise have been required to support daily reporting.
For those other entities that remain in scope of SFT, clearly there is still much to do. If not done so already, firms should understand the scope of the reporting obligation, the products that are in-scope and how they will achieve reporting compliance.