We’ve had a great response to our Brexit webinar on EMIR and MiFIR, but it’s left some of our clients asking “what about SFTR?” We asked our Senior Regulatory Reporting Specialist for SFTR, Jonathan Lee, about what firms need to know.
This Q&A looks specifically at the SFTR reporting obligations (as distinct from any other disclosure requirements) and the period following the end of the transition period from 1 January 2021.
What are the reporting differences?
The key difference between EU SFTR and UK SFTR is that under UK SFTR, non-financial counterparties (NFCs) established in the UK will not be required to report under SFTR, either directly (if large in size) or via mandatory delegated reporting (if small or medium-sized).
As a further point of clarification, if a financial counterparty established in the UK has traded with an NFC, then they will only be required to provide a single transaction report with the FC as reporting counterparty. In the EU, transactions executed by NFCs will be required to be reported from 11 January 2021.
Which regimes do I need to report under?
- Financial counterparties established in the UK will need to report under UK SFTR.
- Financial and non-financial (from 11 January 2021) counterparties established in the EU will need to report under EU SFTR.
- UK established firms trading through EU branches will need to submit reports under both UK SFTR and EU SFTR.
- EU established firms trading through UK branches will need to report under both EU SFTR and UK SFTR.
- Third country established firms trading through UK branches will need to report under UK SFTR.
- Third country established firms trading through EU branches will need to report under EU SFTR.
Which trade repository should I register with?
- Financial counterparties established in the UK will need to sign up to a UK SFTR trade repository (TR) if they have not already done so.
- Financial counterparties established in the EU or any third country, trading through UK branches will also need to sign up to a UK SFTR TR.
What about reconciliations?
Reconciliations going forward will only take place between intra-jurisdiction (EU vs EU or UK vs UK). Simply, you will only be subject to trade reconciliations when both parties have an obligation to report under that jurisdiction (whether UK or EU). This applies to both pairing and matching of transactions and lifecycle events.
Anything else for firms to consider? UTI creation, sharing, pairing and matching…
At present, the unique trade identifier (UTI) creator is determined by either bilateral agreement with the counterparty or a mechanism determined by the ESMA defined waterfall. In essence, this will not change, the issue is that it will only continue to formally apply across a single jurisdiction. Therefore, if you currently have a bilateral agreement to receive UTIs from an EU counterparty, while you will be required to report under UK SFTR, then they will no longer be bound to provide it, nor will it be subject to pairing and matching and vice versa. There is no reason why you cannot continue to supply and receive UTIs in the same way as pre-Brexit, but you may meet reluctance from some counterparties and without dialogue with your counterparties, it should not be assumed, if crossing jurisdictions.
Since these cross jurisdictions become single-sided transaction reports, some dealers have expressed a desire to simplify processes by unilaterally assigning UTIs to cross jurisdictional transactions, thereby no longer offering UTI sharing and pairing for these reports.
- For a conversation with Jonathan or one of our regulatory experts about reporting under SFTR after Brexit, please contact us.