The Securities Financing Transactions Regulation (SFTR) agreement is a recent European Union (EU) regulatory requirement for all firms that undertake securities financing transactions (SFTs). These transactions include repo agreements, securities lending, and margin lending. The European Securities and Markets Authority (ESMA) implemented this regulation to enhance transparency and mitigate systemic risk in the securities market.
The SFTR agreement requires all firms that engage in SFTs to report their trades to a designated trade repository. Additionally, the agreement requires firms to disclose certain information about their transactions, including the type of security used as collateral and the duration of the transaction. The aim is to increase transparency and provide regulators with a better understanding of the securities lending market.
The SFTR reporting requirement applies to both financial and non-financial firms that are involved in SFTs. The regulation will impact investment funds, pension funds, banks, and insurance companies, among others. The ESMA has set different reporting deadlines for different types of firms. The deadline for the first phase of reporting for banks and investment firms was in July 2020, and the deadline for other non-financial firms is in October 2020.
The SFTR agreement is a significant development in the securities financing market. Prior to the regulation, there was limited transparency around SFTs, which made it difficult for regulators to monitor the risks associated with these transactions. The SFTR reporting requirement will provide a better understanding of the securities lending market and enable regulators to take appropriate action if necessary.
The SFTR agreement also imposes penalties for non-compliance. Firms that fail to report their transactions or provide inaccurate information may face regulatory sanctions, fines, or reputational damage. Given the potential consequences of non-compliance, it is essential that all firms that engage in SFTs ensure that they are complying with the SFTR reporting requirements.
In conclusion, the SFTR agreement is an important regulatory development for the securities market in the EU. The requirement for firms to report their SFTs to a designated trade repository will enhance transparency and enable regulators to monitor systemic risk more effectively. Firms that engage in SFTs must ensure that they are complying with the SFTR reporting requirements to avoid regulatory sanctions and reputational damage.