A year on from MiFID II, are you ready for the SFTR challenge?

  • October 26, 2018
 

Johan Joly, Managing Director at MHA Consulting Ltd, asks whether you are ready for SFTR before he leads the FourthLine workshop on the topic.

 

Here is the million dollar question: “Are you ready for the SFTR challenge?”

This question is one that needs an urgent and precise answer to resolve a make-or-break situation in a very complex regulatory environment impacting every player in the industry value chain.

The Securities Financing Transactions Regulation (SFTR) is an EU regulation and part of a drive by the EU to increase transparency of activities that are broadly categorised as Shadow Banking. The regulation is designed to report (similar to EMIR for OTC derivatives) transactions that could pose a significant level of systemic risk and therefore sets out requirements to improve market transparency of Securities Financing Transactions (SFTs).

Any participants in the European securities financing markets will be required to provide daily reporting to a trade repository (TR) of not only every new trade, amendment, correction, error and cancelation but also any trade lifecycle events, collateral valuations and legal entity wide collateral re-use statistics.

ESMA published the final RTS report on 31st March 2017. The reporting start date is still pending the adoption of the delegated act and publication in the EU Official Journal, but latest predictions are that this will be in Q1 2019. Consequently, the reporting Go Live date will be at the start of 2020 for banks and investment firms (Phase 1) at the earliest (i.e. a year after publication in the Official Journal).

With this important indicative milestone in mind, it is essential that firms start work as soon as possible to ensure readiness for SFTR in a timely, efficient and professional manner.

Not seeing the forest for the trees”

The colossal amount of data to report means its naturally tempting for firms to consider doing the strict minimum to meet compliance deadlines without analysing thoroughly the long-term impact of SFTR and understanding the unstoppable direction of travel the whole Securities Finance Industry is heading in.

From my standpoint, the danger is “not seeing the forest for the trees” and neglecting compelling opportunities to break down silos within the firm, redesign suboptimal operating models, reduce operational costs by automating business processes, improving data management systems and connectivity which will create a long-term virtuous business cycle for anyone willing to go the extra mile.

The upside is there for the bold and brave: operational excellence, inventory and collateral management optimization, lower reputational risk, reduced balance sheet usage, funding costs and collateral footprint, improved trading strategies, profitability (ROE), risk/liquidity management and client relationships through advanced data analytics and robust business intelligence.

SFTR Workshop

If you would be interested in learning more about this topic, I will be leading the SFTR | Top to Tail morning workshop on 23rd November, which will provide you with a thorough overview of the regulation, who should report, what products are in scope, which reports ought to be submitted and when, the 153 data attribute requirements and what will be matched and reconciled. We will also look at implementation challenges, solutions options and identify what works needs to be done in 2018 and beyond to fully comply with the regulation.  

Post Credit Crisis in 2008, there has been a persistent regulatory drive towards collateralization in trading. For the interested parties, we will even go further in the afternoon session (Part 2) by looking into the “Bigger Picture”. While SFTR is just one part of the collateral flow within a bank, some of the reporting attributes can be applied upstream to a much wider collateral pool to enable an overall trading cost optimization program.

Full details of the workshop can be found here. Spaces are limited – please get in touch to secure your place.

Written by Johan Joly

Johan Joly is the Founder of MHA Consulting a boutique consultancy firm specializing in Advisory Services and Regulatory Risk.

He is a front office, regulatory risk and business change subject matter expert with over 20 years' experience in the Financial Industry. 

Johan held several senior front office (Trading/Modelling/Structuring/Sales) and compliance advisory roles at Barclays, Lehman Brothers, HSBC, Accenture, Legal and General Investment Management (LGIM) and Mitsubishi UFJ Securities International (MUSI).

He provides advisory services to every participant in the industry value chain (buy-side and sell-side) to navigate risk and regulatory complexities efficiently and deliver optimal operational and technological solutions.  Johan speaks at numerous industry conferences and runs professional workshops across Europe.

Johan holds a Master Degree in Finance & Trading from ESLSCA Business School, Paris (France).

To find out more about MHA Consulting click here, or find Johan on LinkedIn.

 

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