Longer SFTR scrutiny period to give banks breathing space

Despite a European Council statement to the contrary, an extension of the SFTR scrutiny phase could be just what banks need

By Alex Hamilton | 11 January 2019

Any extension to the scrutiny period for the Securities Financing Transactions Regulation (SFTR) comes as a blessing as “there is still so much” for banks to do.

"Some banks will find it difficult to retain their resources [during a delay]. After enough time they get moved on to other projects,” says Dean Bruyns, senior product manager at Broadridge. “Yet I would say for the most part [a delay] is probably a good thing for many participants because there is still so much to do. I would think any extension benefits more banks than not, particularly given current Brexit demands."

An extension to the formal scrutiny period for SFTR has been downplayed by the European Council (EC), following an announcement by the International Securities Lending Association (Isla) earlier this week.

The industry body released a statement this week, citing the EC and stating that the scrutiny period for SFTR would end on June 13. Isla predicts that the implementation timeline will commence “no earlier” than July or August. That would mean reporting obligations would come into force for tier 1 banks no earlier than Q3 2020.

“It is disappointing to see the implementation timetable [moved] out further, this additional time will allow the market to better prepare for SFTR,” wrote Andy Dyson, CEO of Isla in the announcement. “Isla is working extensively with the industry to ensure a smooth implementation as possible of this important transparency directive, and the additional time will allow for the necessary systems and IT development work across the industry.”

Isla did not respond to a request for comment in time for publication. On LinkedIn, Richard Colvill, managing partner at Consolo, recently hired by Isla to cover SFTR, wrote: “All decisions like these are normally not publicly communicated by the Council. However …  the agenda of Monday’s COREPER meeting, where the decision to extend the scrutiny period is listed as a ‘non-discussion’ item under point 15(j) confirms that SFTR was on that agenda and has been duly extended.

“If an item is listed as a non-discussion item, it means that ambassadors just sign it off without discussing it. If any Member State had wanted to discuss it, the preparatory bodies that prepare the ambassadors would have flagged it up.”

Yet the EC has refuted Isla’s claim of a further delay. “The Isla statement relies on wrong information,” an EC official wrote in an emailed statement to bobsguide. “There were six regulatory technical standards related to SFTR for which the objection period was extended by one month. The new applicable deadline for the Council to object to those acts is now 14 February. The Commission has no say over such a decision, it is the prerogative of the Council alone to extend objection periods for delegated acts. The decision was indeed taken during the Council meeting you refer to.

“The Council and the EP don't apply the same deadlines when it comes to technical standards: the EP, by default, extends the objection period to three-month (the maximum period authorised), while the Council extends the one-month objection period on a case by case basis.”

According to Tom Morris, head of sales at RegTek Solutions, the delay could be a blessing or a curse for firms. “SFTR is going to consume a lot of resources to do it correctly. It’s a big project. If you look at it from the perspective of ‘we’re going to continue to give the project budget’ then the delay can give you a bit of a breather to get things done and tighter. If you see it as an excuse to down tools for three months, that could be a great mistake.

“SFTR is going to be more challenging than the European Markets Infrastructure (Emir) regime was, even with the backdrop which [Emir] provided us. It’s very difficult to pull all that needed information together and firms typically don’t have the data that they need at that level, aggregated and available.”

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