Securities Financing Transactions Regulation (SFTR)

Securities Financing Transactions Regulation (EU) 2015/2365

Regulation on transparency of securities financing transactions and of reuse and amending Regulation (EU) 648/2012 (Securities Financing Transactions Regulation, SFTR)

What are the objectives of the SFTR?

The SFTR aims in particular to ensure the transparency of securities financing transactions in the area of bank-like credit intermediation (shadow banking sector). In order to limit risks to financial stability, the SFTR creates an EEA framework under which details of securities financing transactions are reported to trade repositories for the purpose of general information and supervisory monitoring, and under which investors in funds receive information on these transactions as part of fund management.

What does the STFR govern and who is covered?

The SFTR lays down rules on the transparency of securities financing transactions and of reuse to be complied with by counterparties to such transactions or reuse, UCITS management companies, and alternative investment fund managers (AIFM).

The following counterparties (including branches) are covered:

financial counterparties (investment firms, banks, insurers, UCITS and management companies, AIFs and AIFMs, pension funds and pension schemes, central counterparties, central securities depositories)
non-financial counterparties (other undertakings or individuals)
counterparties with registered offices in a third country, if they would be deemed financial or non-financial counterparties if their registered office were in the EEA
exemptions for central banks, Bank for International Settlements (BIS), existing public organisations
no exemption for intra-group transactions

Regulated securities financing transactions include the following:

securities or commodities lending
repurchase transactions
buy-sell back transactions or sell-buy back transactions of securities or commodities or guaranteed rights
margin lending transactions
total return swaps, to the extent not a derivative contract under EMIR

Obligations:

reporting obligations for counterparties to trade repositories (no later than one day following the conclusion, modification, or termination of the transaction; recordkeeping for five years; backloading: open transactions that have a remaining maturity exceeding 180 days from the start of reporting or that have an open maturity and remain outstanding 180 days after the start of reporting)
disclosure requirements for UCITS and AIFs towards investors (annual report, half-yearly report, prospectus, disclosure to investors)
conditions for the reuse of financial instruments received under a collateral arrangement (written risk warning and consent)

Counterparties report to trade repositories registered and supervised by the European Securities and Markets Authority (ESMA). The content of the SFTR notifications is based on the reporting obligations under EMIR and is harmonised in Commission Delegated Regulation (EU) 2019/356. Reporting must comply with the Reporting Technical Standards and Implementing Technical Standards. The final versions of ESMA's reporting guidelines and the required XML reporting formats are expected in the fourth quarter of 2019.

Supervision:

The FMA is the competent supervisory authority. It will exercise its powers vis-à-vis financial counterparties and, in accordance with the SFTR, also vis-à-vis non-financial counterparties.

When does the SFTR enter into force and how does the Regulation apply in Liechtenstein?

In the EU:
The SFTR entered into force on 12 January 2016, with the requirements governing reuse applying from 13 July 2016, the periodic transparency obligations for UCITS and AIFs from 13 January 2017, and the transparency obligations in prospectuses and investment conditions for UCITS and AIFs from 13 July 2017. The expected commencement of the reporting obligations is staggered, with the reporting obligation for investment firms and banks beginning on 11 April 2020, for central counterparties and central securities depositories on 11 July 2020, for insurers, UCITS management companies, AIFMs, and pension funds on 11 October 2020, and for non-financial counterparties on 11 January 2021.

In the EEA/Liechtenstein:
The SFTR will enter into force once it is incorporated into the EEA Agreement. Incorporation is in preparation, with analogous staggering of the applicability of the various provisions as in the EU. The precise applicability of the various obligations will be set out in the Decision of the EEA Joint Committee.

The SFTR contains a few provisions (designation of the competent supervisory authority, powers of supervision, and sanctions) that require national implementation. For this purpose, the EEA Securities Financing Transactions Implementation Act (EWR-WPFGDG) as well as laws amending the AIFMG and UCITSG were prepared and considered in a first reading of the Liechtenstein Parliament on 6 September 2019. The second reading of these draft laws is planned for November 2019. The EWR-WPFGDG and the ancillary enactments are expected to enter into force at the same time as incorporation of the SFTR into the EEA Agreement.

What is the status of implementation?

The current status of the EEA incorporation procedure for the Benchmarks Regulation can be accessed via this link.
On the basis of the SFTR, the European Commission has issued nine delegated acts (Level II) to supplement or further specify various provisions.