SFTR Reporting Challenges for Buy-Side firms

SFTR Reporting go-live in July seemed to go fairly smoothly (at least on the surface) but how will the buy-side fare now it’s their turn? Jonathan Lee outlines some of the challenges facing buy-side firms.

Almost five long years since the SFTR regulation was published in November 2015, the reporting requirements finally go live for the buy-side* and UCITs today (Monday 12 October). In practice, the first reports are likely to wait until tomorrow given the lack of trading on a Sunday.

Delegated reporting

Buy-side SFTR reporting brings with it many new nuances and challenges, particularly given the greater dependence on delegated reporting and the management structure surrounding some funds. Where the reports become essentially single-sided reports with delegation, any perceived reporting quality benefits from pairing and matching disappear (although the results from our ReportShield™ Accuracy Testing leads us to believe these benefits are somewhat tenuous anyway). The lack of a reporting aggregator will present significant report sequencing challenges too, where one manager or delegated reporting broker dealer can inadvertently overwrite the reports of another. This is particularly relevant to collateral reuse and cash reinvestment reporting (Table 4) and repo market bilateral margin reporting too.

Reporting counterparties are ultimately responsible

Unfortunately for the buy-side, SFTR reporting is not something you can wash your hands of through delegation. The reporting counterparty (you, the fund) retains the legal obligation to submit complete, accurate and timely reports to a registered trade repository (TR). In addition, the lack of necessary data at the delegated reporting party, coupled with commercial confidentiality concerns around revealing positions, means you retain the obligation to provide collateral reuse and cash reinvestment details too. Together, this means that ensuring that the reporting firm has an effective controls environment is a key requirement for all financial counterparties in the securities financing transaction (SFT) markets.

Controls are key

At Kaizen Reporting, we are firm believers in not marking your own homework when it comes to quality checking your own reporting. We are working closely with our clients to ensure the right controls are in place to keep delegated reporting parties on their toes. Our ReportShield Accuracy Testing and Advanced Regulatory Reconciliation are outsourced, managed services that aid firms in doing this, providing fund managers, compliance and senior management with confidence that they are meeting their SFTR reporting requirements.  

• Watch Jonathan speaking about these issues in this short interview.
• If you are a buy-side firm and would like a conversation about the contents of this blog or the accuracy of your SFTR reporting, please contact us.

*pension funds, insurance & re-insurance companies, alternative investment funds (hedge funds)