Short Reads

Guidance on securities financing reporting requirements

Guidance on securities financing reporting requirements

Guidance on securities financing reporting requirements

14.04.2016 NL law

On 12 January 2016, the Securities Financing Transactions Regulation (SFTR) entered into force. 

The SFTR aims to improve transparency in areas where bank-like credit intermediation known as 'shadow banking' takes place and requires financial and non-financial market participants to report details of their securities financing transactions (SFTs). The SFTR also contains requirements on the information in periodical reports and pre-contractual documents of collective investment undertakings. With the publication of its discussion paper  on  11 March 2016 the European Securities and Markets Authority's (ESMA) provided guidance on the scope and logistics of the reporting obligations.

Securities Financing Transactions (SFTs) and shadow banking

The European Commission adopted the SFTR as part of its action plan on shadow banking. A wide range of secured transactions will become subject to the reporting requirements imposed by the SFTR. SFTs are secured transactions that have similar economic effects such as lending or borrowing securities and commodities, repurchase (repo) or reverse repurchase transactions (reverse repo) and buy-sell back or sell-buy back transactions, including collateral and liquidity swaps. The main SFTs covered by SFTR are securities lending transactions and repos.

The definition of an SFT in the SFTR does not include derivative contracts as defined in the European Market Infrastructure Regulation (EMIR).

Shadow banking is considered to be a system of credit intermediation that involves entities and activities outside the regular banking system. Although shadow banks are not regulated like banks, their operations are often similar, as they:

  • take in funds similar to deposits;
  • lend over long periods and take in deposits that are available immediately (known as maturity and/or liquidity transformation);
  • take on the risk of the borrower not being able to repay; and
  • use borrowed money, directly or indirectly, to buy other assets.

Shadow banking activities are an important source of finance for financial entities, in particular where securitization, securities lending and repurchase transactions are involved.

Reporting obligations

The SFTR provides for the reporting of details regarding SFTs entered into by any market participant in the EU and is applicable to both financial and non-financial entities. The purpose is to identify and monitor financial stability risks created by shadow banking activities of regulated and non-regulated entities. Reporting obligations include the composition of the collateral, whether the collateral is available for reuse or has been reused, the substitution of collateral at the end of the day and the haircuts applied. Information on the risks inherent to securities financing markets will be centrally stored and must be easily and directly accessible to the relevant competent authorities such as ESMA, the banks of the European System of Central Banks and the European Central Bank. Transactions with central banks as counterparty are exempted from this reporting obligation.

The obligation to report to trade repositories applies to every counterparty to an SFT established in the EU. This also includes counterparties established outside the EU if the SFT is entered into in the course of the operations of a counterparty's branch located in the EU. The information that is reported should include the details of any SFT as well as any modification or termination thereof and has to be kept on record for at least the following five years.

Transparency in periodical reports and pre-contractual documents

The SFTR also introduces new rules on the transparency of Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers (AIFMs). As from 13 January 2017, all UCITS and AIFMs should include detailed information on any use of STFs in their periodical reports and pre-contractual documents to make investors aware of the risks associated with this use.

ESMA Technical Standards

ESMA is mandated to draft Level 2 measures to ensure consistent application of the reporting obligations following from the SFTR. By 13 January 2017, ESMA must have submitted draft regulatory technical standards regarding:

  • the details of the reports for the different types of SFTs;
  • the registration procedures and application of trade repositories; and
  • transparency and availability of data held in a trade repository.

The discussion document published by ESMA on 11 March 2016 sets out ESMA's proposals for implementing the reporting framework and the registration requirements for those trade repositories wanting to accept reports on SFT's. Market participants can provide comments until 22 April 2016.

Timing

Although the SFTR entered into force in January, the actual reporting obligations are expected to become effective  in the course of 2017. The SFR also includes requirements on, for example, the reuse of collateral and contains rules on contractual arrangements between counterparties that will become effective in July 2016.

Related news

15.10.2021 NL law
BRRD II implementation in the Netherlands

Short Reads - Recently, the Dutch bill for the implementation of BRRD II (i.e. Directive (EU) 2014/59 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended by Directive (EU) 2019/879) in the Netherlands was submitted to Dutch Parliament, where it is currently under debate.

Read more

01.10.2021 NL law
Vanaf 1 oktober strengere regelgeving voor verkoop van turbo’s aan particuliere beleggers

Short Reads - Turbobeleggers nemen veel risico’s en verliezen gemiddeld veel geld. De AFM vindt dat particuliere beleggers onvoldoende beschermd worden tegen de risico’s van turbo’s. De verkoop van turbo’s aan deze beleggers wordt daarom aan banden gelegd. Met ingang van 1 oktober geldt een hefboombeperking, een verplichte risicowaarschuwing en een verbod op handelsbonussen. Daarmee wil de Autoriteit Financiële Markten (AFM) particuliere beleggers beter beschermen tegen de risico’s van turbo’s.

Read more

14.10.2021 NL law
NFTs: New legal challenges on the horizon

Short Reads - Non-Fungible Tokens, widely known as NFTs, have recently gained much attention due to their role in the transfer of digital artworks. The market for NFTs grew from USD 13.5m in the first six months of 2020 to USD 2.5bn in the first half of 2021 and is still growing at an expansive rate. Notwithstanding their increasing popularity in the world of art, NFTs have many potential applications. In this blog Maciek Bednarski, Annemijn Witkam and Roderik Vrolijk explain what NFTs are and describe some of the legal challenges they will bring about.

Read more

20.09.2021 NL law
AFM: Beleggingsfondsen kunnen beleggers beter informeren over duurzaamheid

Articles - Beleggingsfondsen kunnen beleggers beter informeren over duurzaamheid. De informatieverschaffing van fondsen over duurzaamheidsrisico’s en duurzaamheidskenmerken is nog vaak te algemeen, daardoor krijgen beleggers te weinig inzicht in waar ze in investeren. Dat is een van de conclusies van de Autoriteit Financiële Markten (AFM) in een verkennend onderzoek naar de toepassing van de Sustainable Finance Disclosure Regulation (SFDR).

Read more

11.10.2021 NL law
Vervolgonderzoek van de AFM naar incidentmeldingen door asset managers

Articles - Sinds de uitbraak van het coronavirus wordt ook in de financiële sector meer op afstand samengewerkt. Dat brengt specifieke risico’s met zich mee. De Autoriteit Financiële Markten (AFM) gaat daarom vervolgonderzoek doen naar het melden van incidenten door asset managers. De reden is het uitblijven van een stijging van het aantal incidentmeldingen ondanks herhaalde oproepen daartoe.

Read more