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Securities Financing Transactions Regulation: expected industry challenges

The 2008 global financial crisis revealed regulatory gaps, ineffective supervision, opaque markets and overly-complex products in the financial system. Since then, the European Union adopted a range of measures in order to render the banking system more solid and more stable, including strengthened capital requirements, rules on improved governance and supervision, and resolution regimes.

29 Apr 2020

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One of these regulations is the Securities Financing Transactions Regulation (SFTR), which was due to take effect on 11 April, but as a result of the coronacrisis, ESMA has postponed its entry into force until 13 July 2020. What are the expected challenges of the new Regulation?

Expected industry challenges of implementing SFTR
When SFTR is in effect, companies are required to declare SFTs to an EU trade repository. Information on SFTs has to be stored for at least 5 years after their completion, modification and termination, as well as a T+1 timeframe for reporting. Additionally, the regulation also aims to launch minimum standards for collateral valuation and intends to eliminate the SFTs possibility of disguising potential weaknesses in financial institutions’ balance sheets. What are the chances of obtaining this insight?

After all, there are still discussions about the actual success of EMIR. There were also discussions about systemic risk monitoring specifically for derivatives. If we look at the developments of EMIR and its impact on the financial market, it seems that EMIR has made the (financial) world a little safer.

Since SFTR also aims to improve the banking system by making it more solid and stable, a positive expectation of the effect of SFTR is not unjustified. It seems that SFTR will make shadow banking less diffuse. The inclusion of bank-like activities in supervision is a commendable objective. Like EMIR, we think SFTR will also make the financial world a little safer. After all, from a risk management perspective, the biggest risks are the risks you do not know ("the unknowns"), and SFTR will create transparency that will improve risk management.

KAS BANK N.V. has been part of CACEIS since September 2019. CACEIS is a European specialist for the custody and administration of securities and high-quality risk and reporting services. We focus entirely on providing securities services to professional investors in the pensions and securities world. The acquisition of KAS BANK N.V. strengthens CACEIS' position in the Netherlands, Germany and the United Kingdom. Our combined product range makes us market leader in custody services and fund administration in Europe. CACEIS is part of Crédit Agricole, the world's largest cooperative financial institution.

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Henk Brink

More information about SFTR?

Henk Brink

Senior Market Intelligence Specialist
+31 (0)20 557 5327