SFTR: Six months on – what have we learned?

As we look back on six months of SFTR, it’s fair to say that as a regulatory reporting quality assurance firm, we are perhaps the harshest critics of regulatory regimes and reporting firms. We do however wrap our criticism in a velvet glove as opposed to the enforcement actions that may follow for firms that do not take heed.

Brexit has taken over

With Brexit also live, there is perhaps as much uncertainty now as there was in the run up to July go-live. Brexit has hijacked the agenda and brings about new fears and challenges such as some dual reporting requirements. We have already seen the first signs of divergence (with non-financial counterparty reporting live in the EU but not required in the UK), with more to follow if the UK fails to make a breakthrough on passporting. EU beneficiary countries taking business from London have yet to show their true colours in terms of their levels of surveillance, regulatory interpretation and enforcement, adding to the uncertainty.

Regulatory concerns

There was certainly a lot of virtual back-slapping following SFTR go-live with very high trade repository (TR) acceptance rates (particularly relative to more mature regimes) but regulator concerns remained. Reported volumes, while hard to judge during a global pandemic, have been trending below regulator expectations. Collateral reporting, its quality and in some cases, its apparent absence, appear something of a black mark.

How could the UK improve the regime?

Though our Kaizen Accuracy Testing we have been able to glean far greater insights into reporting logic than the validation rules ever could. We can see that firms are struggling to populate certain data fields. The haircut and margin fields are good examples of where we are seeing significant numbers of errors. The concerns that I expressed with the FSB and ESMA with regard to reference data quality have also been borne out of the reporting delivery. The need for fully specified reference data and genuine golden sources is more evident than ever. The UK could be minded to take out much of this reference data, significantly simplify reporting and dramatically improve data quality by independently sourcing much of the security data themselves. “If you ask 10 different reporting counterparties, you’ll get 8 or 9 different answers!”  

Next steps:

1. Don’t try to game the regulation and take advantage of the current poor state of the validation rules. Expect tighter regulation and enforcement as the newly involved EU national competent authorities find their feet and their teeth and the UK FCA looks to re-assert its authority.
2. Ensure that controls are in place to provide certainty around completeness of reporting, with particular attention to full collateral lifecycles and collateral reuse.
3. Finally don’t be afraid to reach out to get help! There is a lot to be said for not marking your own homework and employing expertise and regulatory testing to bring the true quality of your SFTR reporting into sharp focus.

• If you would like help with your SFTR reporting post-Brexit or to speak to one of our specialists, please contact us.