Our SFTR specialists Jonathan Lee and Tony Weedon, list their key recommendations for addressing the challenges of collateral reporting which is proving to be one of the most difficult aspects of SFTR.
- Install data guardians. Ensure every data item is appropriately sourced and has an accountable owner.
- Make your vendors earn their keep! Devote significant effort to sourcing SFTR data internally or around installing effective governance around externally sourced vendor data.
- Prioritise data sources i.e. ESMA demand official sources for data points such as CFI codes, so use official sources such as the numbering agencies and FIRDS rather than data vendors wherever possible.
- Be upfront, transparent and timely in all of your SFTR reporting including the collateral. Do not withhold know transaction details and ensure daily collateral updates of changes and pricing. Ensure executions are always reported on a trade date +1 basis.
- Collateral updates. If the pricing of collateral or the quantity of collateral has changed in relation to open and outstanding term transactions, then provide settlement date +1 collateral updates accordingly.
- Stay honest to the transactions: if the master agreement indicates that the transaction is collateralised at the trade level, then report accordingly. Do not allow net collateralisation reporting to absorb what should be trade level collateral reporting if this is not consistent with the contract.
- Follow ICMA’s ERCC best practice on bilateral margin reporting for repo until such time that ESMA have provided a Q&A or clear guidelines regarding any alternative approach. This process will involve maintaining two distinct sets of collateral and collateral updates (trade level and portfolio level) in relation to the repo book.