Time to reflect on the past year: the anniversary of the SFTR reporting go-live for pension funds, insurance & re-insurance companies, AIFs and UCITs falls today. Firms got over the line but how confident are Compliance teams that the firm is truly compliant? The trade repository (TR) public data has highlighted data quality issues and with it, potential systemic issues. Collateral reporting in particular appears to be a pain point but also something that may raise alarm at national competent authorities – with fears of under or over collateralisation. ICMA’s recent report provides a good summary of exactly what the TR data has revealed.
When will regulators act?
Tackling the lack of visibility around the functioning of SFT markets, together with preventing the next financial crisis being caused by excess leverage or interconnectedness were the foundations on which SFTR was built. Without high quality data, this simply is not possible and regulators will be poised to take action against parties preventing this transparency through low quality reporting.
Questions buy-side firms should be asking
Many buy-side firms opted to take advantage of delegated reporting offerings from their broker dealers. Delegated reporting maybe out of sight but are you receiving sufficiently detailed management information from broker dealers for it to be out of mind? How much visibility do you have around the completeness, timeliness and accuracy of your firm’s reporting? Are you able to see the trade repository acceptance status of your firm and your fund’s reports? Are you able to keep on top of the status of new reports and lifecycle events? Have you experienced any issues over the generation, transmission, receipt or onward reporting of collateral re-use or cash re-investment? While you may delegate the physical act of reporting, unfortunately, you cannot delegate the legal obligation to ensure that SFTR reporting is complete, accurate and timely.
Have you noticed variation in the quality of the regulatory reporting services you receive? Are certain report submitting parties filling you with less confidence? Have you reviewed how consistent the reports are between different brokers? Are securities being classified in the same, correct way across different report submitters?
Clarity on the rules
Uncertainty has been the bane of all reporting parties under SFTR. While reporting counterparties like clear sets of rules, the current, rather immature state of the guidelines and Q&A mean that regulatory and compliance certainty is sadly lacking. The latest SFTR Q&A backs this up.
In our experience, sell-side firms are facing significant challenges in ensuring the quality of their own reporting, never mind their client’s reporting. That SFTR has been as successfully adopted as it has amid dramatically shifting landscapes has been quite remarkable. The pandemic (with no additional delays for the buy-side) has been compounded not only by Brexit (with obligations to report under two distinct jurisdictions and in some instances both regimes) and now the withdrawal of one of the trade repositories that perhaps initially had the keenest buy-side focus. This withdrawal has introduced scheduling and porting challenges together with a renewed focus on the quality of reporting. No better time than a migration to take a fresh look at whether everything is being reported, that validation and reconciliation queries are being addressed and that reports are not only valid (they pass TR validation rules) but are also correct.
- As we enter year 2, please feel free to contact us to learn more about our SFTR quality assurance services and how we can assist in ensuring 100% compliance.