Fund managers may be required to provide data under the EU’s Securities Financing Transaction Regulation (SFTR) ahead of their reporting deadline, according to Catherine Talks, product manager, UnaVista.
Under the rules, firms must be able to report counterparties' details. Credit institutions, investment firms and relevant third country firms are required to comply with SFTR from April 2020, while funds – UCITS funds, alternative investment funds, insurance firms and pension funds – do not come have to comply until October 2020. However, if a transaction is traded under a block and allocation model then the financial firm may know the block details, but not necessarily the individual allocations through the many funds.
“So, the buy-side have had to think, ‘well actually I need to then give the sell side all of this information around allocations that I haven’t had to do today,’” said Talks at a breakfast briefing at the London Stock Exchange's offices last week. “So, there is a lot more discussions that are going on. The buy-side are having to think very carefully about the information they need to provide through the whole reporting chain even though they are impacted much later on.”
SFTR reporting implementation go-live dates are staggered throughout 2020. For example, central counterparties (CCP) and central securities depositories (CSD) will be required to report from July 11, 2020. With this in mind, James Stacey, regulatory business analyst at LCH said the CCP had decided to go-live at the same time as banks and investment firms in April 2020 to be able to pinpoint quickly where reports may go wrong.
“The communication went out to our members on September 30 detailing the specifications for our new reporting with SFTR data attributes included,” said Stacey.
There is a growing concern in the industry about the availability of key reportable reference data, according to Stacey.
“LEI coverage across issuers, for example, is not complete and with the strong stance that this and other attributes need to be present on the trade to be able to be reported could be a problem,” said Stacey. “It depends on a firm by firm basis how big that problem is, but most firms have identified issues at some stage in the reporting cycle with sourcing those data," said Stacey.
“There are, for example, rare instances of US securities, which can be traded by European firms, which don’t have an ISIN,” he said.
The European Securities and Markets Authority (Esma) is expected to publish the level three text of the regulation within the fourth quarter of this year, but Stacey said the text needs to come soon as the industry is “expecting a degree of change”.
“The implementation details of the regulation have not yet been finalised, so developing a reporting function for a regulation which is still subject to change is presenting some key challenges to the industry,” he said.
“The development timelines are tight and if you consider that development, various degrees of testing, change management etc. has to occur before the regulatory timeline comes into force then the timing of the level three publication becomes all the more important to the industry.”