The first deadline for new transaction reporting under the UE’s SFTR went live on July 13, and while the first phase seems to have come off relatively smoothly, there are still some concerns around the readiness of the financial services industry when it comes to the reporting process.
“Whilst [this] marks the first deadline for new transaction reporting requirements under SFTR, the truth is that many sell-side firms remain unprepared,” warns Neil Vernon, Chief Technology Officer at Gresham Technologies. “Banks will be reporting, but the bottom line is: if you can’t report accurately and on time, should you be trading? What value does reporting under the new SFTR regulation have if you can’t be confident in the quality of your data?”
Gresham points out that sell-side firms could also be about to see a steep incline in data errors when it comes to transaction reporting on July 13. “To put this into context, 36 months on from MiFIDII and we’re still flagging around 300,000 problems a day for transactions under the regulation, and that’s just at one organisation. By comparison, for SFTR reports being produced now we’re looking at around 1.5 million errors a day,” he tells RegTech Insight. “Although it is too early to determine its wider impact on trading activity, SFTR will separate the wheat from the chaff: who has invested in the right reconciliation technology to establish data quality controls, and who remains bogged down in the murky waters of manual processing and legacy tech.”
But others are more optimistic. “We’ve been impressed with the level of focus and resources the sell-side industry has allocated towards their preparations for the SFTR go-live,” notes Val Wotton, Managing Director of Product Development and Strategy, Repository and Derivatives Services at DTCC. “While some issues remain in areas such as the reporting of lifecycle events and the reconciliation process, these will only be resolved once the industry has undergone practical implementation and the buy-side goes live in October. As a result, the go-live date is not the end of preparation for the sell-side community, but rather the beginning of the next phase in SFTR implementation. We look forward to continuing our close collaboration with market participants as the regulation takes effect.”
The recent deadlines are also a warning shot for the buy-side, who now have three months before that come within scope of the regulation themselves – and should be taking this time to learn as much as possible from the sell-side example.
“While the sell-side have undertaken significant work and are prepared for the first two phases of the implementation, there are still some outstanding issues which can only be resolved after SFTR takes effect,” explains Wotton. “This creates an ambitious deadline for sell-side firms to assist those buy-side firms who have opted for the delegated reporting model, as several outstanding issues within this model remain including the reporting of collateral reuse. As a result, we urge all buy-side firms to act now, finalise their reporting plans and begin testing in order to avoid disruption ahead of the October deadline.”