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Last Call for SFTR Phase 1: Have You Got Your Reference Data House in Order?

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At first glance, the EU’s SFTR regulation clearly focuses on the securities lending space. But a further look reveals that the regulation – like other data-heavy regulations with a major reporting element – has a significant reference data and data management requirement. With the April 14 implementation date for the first phase in sight, those who haven’t taken that second glance need to. And quick.

If you are in that group – or if you’d just like to know how others are addressing the reference data and other challenges of SFTR – A-Team Group is hosting a webinar on the topic on March 5. The webinar will feature a panel of experts discussing best approaches to SFTR’s requirements, including:

  • Dawd Haque, Global lead for Regulatory Market Initiatives, Transformation & Strategy, Deutsche Bank AG
  • Thomas Pikett, Vice President, Agencies Securities Lending, Product Development, JP Morgan
  • Lance Risi, Director – Product Management, S&P Global Market Intelligence
  • Linda Coffman, EVP Reference Data Utility, SmartStream RDU

Registration is free. You can get more information here.

In the meantime, it’s worth revisiting what SFTR is all about, and what firms need to do to address the reference data and data management challenges it poses.

SFTR aims to highlight transactions that could pose a significant level of systemic risk. It sets out requirements to improve market transparency of securities financing transactions (SFTs). To improve transparency, SFTR requires all SFTs and associated collateral to be reported to recognized trade repositories, using the ISO 20022 standard, building on the MiFIR requirements. Any firm engaging in SFTs will have to review their workflows and upgrade data management systems to fulfil the transaction reporting obligation.

The regulation will come into force in four phases. The first reporting go-live date for banks and investment firms is on April 14. Subsequent go-live dates are July 13 (for CCPs and CSDs), October 12 (for insurance firms, UCITs, AIFs and pension funds) and January 11, 2021 (for non-financial entities).

One of the biggest issues facing regulated entities is reference data. SFTR reporting requires firms to populate 12 fields covering the details of the financial instrument traded, including an SFTR specific classification and a security quality indicator. Gathering this information, identifying and closing any gaps in coverage, and finally enriching it so it meets the quality criteria of the regulation, represent a thorny challenge, not least because how to meet the requirements for certain data fields is only now becoming clear.

On paper, SFTR requires firms to provide the following reference data elements:

  • Security/collateral Identifier. ISINs (International Securities Identification Number) of both the security and the collateral used in the securities finance transaction.
  • Classification of security/collateral. The CFI (Classification of Financial Instruments) code of the security/collateral used in the SFT.
  • Currency of nominal amount. Currency of nominal amount of the security, where necessary.
  • Security/collateral quality. Code for classifying the credit risk of the security/collateral.
  • Maturity of the security/collateral. Date of maturity of the security/collateral involved in the SFT.
  • Jurisdiction of the issuer. Jurisdiction in which the issuer of the security/collateral is located.
  • LEI (Legal Entity Identifier) of the issuer. The LEI, if available, of the issuer of the security/collateral.
  • Security/collateral type. Classification code that describes the type of security/collateral used in the SFT.

A number of these fields have posed challenges for reporting entities. First is security/collateral quality, which has been subject to debate among practitioners as to how best to address it. At issue is whether a rating from a recognized agency will suffice, and this will be one of the topics of discussion on the March 5 webinar.

Similarly, the requirement to provide the LEI of the issuer of any given security has posed problems, particularly for securities issued outside of the EU. Practitioners have also grappled with other related issues, including identification of the jurisdiction of the issuer, security/collateral type and backloading of details of still-ongoing securities financing transactions.

All of these issues and more will be discussed on the webinar on March 5. In the meantime, you can get more information about the challenges and best practice response from A-Team’s white paper on the topic, written with SmartStream and available for free download here.

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