Following a letter from trade bodies including the International Securities Lending Association (ISLA) and the International Capital Market Association (ICMA) this week, EU regulator ESMA is expected to issue clarification on whether it might consider a six-month delay to the upcoming Securities Financing Transactions Regulation (SFTR) currently due to go live in April.
The joint letter requests that the first phase of reporting be pushed back to October, a decision that rests with the European Commission, although ESMA is able to make recommendations. “The impact on personnel involved in SFTR implementation programmes, compounded by pressures on firms caused by the associated surges in market volatility and volumes, has reached a point where firms believe that their capacity to ensure compliance with the requirements as of 11 April has been critically compromised,” stressed the trade associations in the letter of 16 March.
In the absence of a formal delay, the industry has asked ESMA, at a minimum, to consider equivalent measures that would provide “forbearance and sufficient reassurance for firms that they are not expected by ESMA and their respective NCA to ensure strict compliance with SFTR reporting obligations” for an appropriate period of time following the legal reporting start date – suggesting that October would again be an appropriate time to resume enforcement.
It is understood that EMSA has acknowledged these concerns, and promised to provide clarification, expected by the end of the week. But it is not jut SFTR that is a concern. Banks contacted by RegTech Insight have also raised issues around the EMIR Refit, suggesting that this too should be delayed by six months. From 18 June, financial counterparties who trade with a non-financial counterparty (NFC) will be required to report the transactions on behalf of the NFC (mandatory reporting), unless it elects in advance to make its own report – and problems are already anticipated.
“Although it’s an easier job [than SFTR], we expect many of our clients to be massively impacted by the virus, which will affect their ability to give us feedback,” explained one compliance head to RegTech Insight, on condition of anonymity. “It’s not an implementation problem – we can turn on delegated reporting at the flick of a switch. But the quality of data is a concern – we need our clients to tell us what needs to be on their half of the report, and we have serious doubts about their ability to do that. We have asked the trade associations to contact ESMA on this directly, as they did for SFTR – and to be honest, it’s a bit odd that no one else has thought of this yet.”
ESMA, which started remote working for all its staff from Monday 16 March, has indicated its support for firms during the current crisis, confirming in a statement on 11 March that it was “prepared to use its powers to ensure the orderly functioning of markets, financial stability and investor protection,” and recommending that all financial services firms should be ready to deploy Business Continuity Measures (BCM); disclose as soon as possible any relevant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation; and provide transparency on the impact of COVID-19 in their interim and 2019 end-of-year financial reports.
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