System consolidation to save firms from SFTR struggles

By Alex Hamilton | 16 January 2019

Systems consolidation is the name of the game if firms are to meet the reporting requirements of the Securities Financing Transactions Regulation (SFTR), according to Broadridge senior product director, Dean Bruyns.

“Obviously it takes work and it takes budget. These are challenges that all banks have,” says Bruyns. “Budgets are stretched, and a lot of money was spent on Mifid II. Yet, if they can afford it, then there is no doubt that consolidating everything into one solution will make things simpler in the future.

“You should think strategically and adopt a long term approach with more integration between the treasury desk, the fixed income desk, and the stock lending desk. Essentially a less siloed structure, with businesses leveraging the same technology and resources will make for less fragmentation, more simplistic management and less duplication of effort.”

Tom Morris, head of sales at RegTek Solutions, adds: “Changes will obviously need to be made to existing systems. To make sure you’re reporting accurate data you’re going to want solid control frameworks around all of this. You need to identify gaps in the data before it's reported.”

“Ultimately it won’t just be a case of getting up and running, either. There are likely to be reiterations, as is happening with the Emir. Keeping up with that, instead of having to mobilise project teams each time a change comes from a regulator or trade repository, will be key.”

SFTR requires 153 data fields, covering 18 counterparty data fields. There are 99 for transactions, 20 for margins and 16 for re-use. Up to 80 of these fields need to be matched. Industry readiness differs across the board. “Because the dates have slipped so much there are firms still running their SFTR programs and there are firms putting it on the back burner,” says Morris. “I think the fact that the RTS have been endorsed recently means that firms will now pick it back up in anger.”

DTCC’s European head of product development and change, Mark Steadman, believes that Brexit has had an impact on SFTR readiness. “Due to resources having been allocated to Brexit preparations, many industry participants were waiting for the technical standards to be approved by the Commission before they kick-started their SFTR plans,” says Steadman. “Clients are deciding what SFTR preparation model to adopt - a short, intense style or a longer, thinner approach which enables them to conserve resources for other projects.”

In an industry whitepaper, Simon Davies, senior consultant at The Field Effect, wrote that because SFTR mandates operational separation within an Emir-authorized TR, a TR “will have to maintain separation not only between its EU27 Emir and SFTR reporting operations but also between its EU27 and UK operations”. This means the creation of four separate TR work streams, operationally separate from each other.

In an “ideal world” companies would be creating an SFTR and Brexit plan “in parallel”, says Bruyns. “Clearly, Brexit is putting the brakes on SFTR preparation to a certain extent, but hopefully once there is some certainty around the outcome, they’ll dive 100% in SFTR thereafter.”

“The complexities of SFTR demand advance planning and preparation, which should already be well underway for firms subject to the regulation,” wrote Davies. “Key decisions firms will have to make include whether to invest in building in-house reporting functionality or outsourcing that work and which vendors to partner with on these efforts.”

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