Flexibility is key to the Master Reporting Agreement for the Securities Financing Transactions Regulation (SFTR) and European Market Infrastructure Regulation (Emir) says Ciaran McGonagle, assistant general counsel at the International Swaps and Derivatives Association (Isda).
"We completely acknowledge that when you are trying to do any form of master documentation structure, you're trying to cater for a number of different scenarios,” says McGonagle. “There may be market participants who want the ability to document all of their reporting relationships under a single agreement – whether that's derivatives or SFTs – in which case the [new] agreement will accommodate that.”
Isda has partnered with the International Capital Market Association (ICMA), the International Securities Lending Association (Isla), and the Futures Industry Association (FIA) in the creation of the Master Reporting Agreement for SFTR and Emir.
Changes to the reporting regime under Emir and the introduction of a new reporting regime under SFTR has meant that market participants in the EU derivatives and SFT markets are likely to be establishing new reporting arrangements, according to Isla.
The association argues there is enough commonality between delegated and mandatory reporting under both Emir and SFTR for a single reporting framework to be developed.
"It made sense to explore whether there might be an opportunity to create a consolidated form of agreement, given that there is a lot of commonality between requirements under Emir Refit and SFTR,” adds McGonagle.
"It started out as a discussion among the trade associations themselves. We were finding ourselves trying to tackle very similar issues. From Isda’s perspective we'd been working with our members over the course of the year, with respect to our documentation, to take into account some of the changes that have been introduced as part of the Emir Refit, including the creation of a new form of Master Regulatory Disclosure Letter which allows firms to exchange counterparty classification information.”
The Agreement is expected to be structured as a document together with two or more annexes that can address regulation or product-specific requirements. Trading entities will be able to execute a copy of the Agreement and append one or more of the annexes in a modular approach.
"There will also be people who want different agreements for each regulatory regime, or relationships where mandatory reporting isn't relevant,” says McGonagle. “We're keen to ensure that wherever we end up in terms of structure, the agreement is capable of being used in a number of different scenarios so as to cater to the needs of different market participants."
According to a June survey from Luxoft, 74 percent of compliance professionals at investment banks believe that SFTR compliance will require a much more complex IT infrastructure than Emir, while 71 percent believe it will be more costly. Despite this, 99 percent were confident that they would meet SFTR requirements in time.
The initial framework for the Agreement is set to be published in December following a period of consultation with market participants, in which the four trade bodies are asking for feedback on scope, structure, approach and process via a questionnaire.