Brexit: UK sets out final SFTR, EMIR and MIFID II reporting rules
23 December 2020 UK
Image: Feydzhet_Shabanov/adobe.stock.com
The UK’s Financial Conduct Authority (FCA) has laid out the final reporting rules for securities financing transactions (SFTs) after the Brexit transition period ends on 31 December.
The Securities Financing Transactions Regulation (SFTR), the European Market Infrastructure Regulation (MiFID II) and the second Markets in Financial Instruments Directive (EMIR) will be onshored as of 2021 meaning they do not fall under the Temporary Transitional Period (TTP) which maintains the status quo for several other regulatory frameworks and runs until 31 March 2022.
As such, UK entities must be ready to comply with the onshored versions of these reporting frameworks by the end of the year.
The regulatory also confirmed that given the “scale, complexity and magnitude of some of the changes” it does not intend to take enforcement action against firms that are not fully compliant as of 1 January 2021.
Entities or persons that are not able to not meeting all requirements straight away, but can show evidence they took “reasonable steps” to prepare to meet the new obligations by 31 December 2020 will be shown clemency, the FCA stated.
The regulator added: “Where firms and other regulated persons are not fully prepared by that date, we would expect them to comply with the new obligations as soon as reasonably practicable.”
SFTR
UK SFTR will be identical to the EU version which came into effect in stages throughout the year but will not include phase four, which relates to non-financial counterparties.
SFTR phase four goes live in January 2021 and therefore falls outside the transition period. The UK made a similar commitment to not onshore the Central Securities Depositories Regulation’s settlement discipline regime for the same reason.
These mark a few of the ways the UK and EU will diverge as of 2021.
Under UK SFTR, all financial counterparties, including third-country branches, central securities depositories (CSDs) and central counterparties (CCPs) who enter into SFTs must report to an FCA-registered trade repository (TR).
In addition, TRs will be required to provide the relevant UK authorities with access to that data.
However, the TTP will apply to SFTs where one of the counterparties is a member of the European System of Central Banks (ESCB). In these instances, entities should continue to report to the authorities they do now and will not simultaneously report to the FCA for a further 15 months as of 1 January.
This is important because the UK and EU are still yet to sign a bilateral equivalency decision for SFTR, meaning they are days away from being kicked out the other’s reported data pool.
A European Commission spokesperson tells SFT it remains able to make a decision up until the last moment of the year, but practical realities mean the window is all but shut.
MiFID II
To complicate matters further, unlike SFTR, where firms are subject to MiFIR transaction reporting obligations they will need to report these securities financing transactions to the FCA under the onshored MiFIR, where the counterparty is a member of the ESCB.
The UK’s transaction reporting regime under MiFID II will also change as a result of Brexit, including connected obligations such as the requirement to submit financial reference data.
This includes the need for trading venues to transaction reports for transactions on their venues by their European Economic Area (EEA) members, and EEA firms in the temporary permissions regime who operate through a UK branch to start transaction reporting to the FCA.
EMIR
Under EMIR, like SFTR, firms and CCPs entering into derivative transactions but also report to an FCA-registered TR. TRs are also required to share that data with UK authorities.
The Securities Financing Transactions Regulation (SFTR), the European Market Infrastructure Regulation (MiFID II) and the second Markets in Financial Instruments Directive (EMIR) will be onshored as of 2021 meaning they do not fall under the Temporary Transitional Period (TTP) which maintains the status quo for several other regulatory frameworks and runs until 31 March 2022.
As such, UK entities must be ready to comply with the onshored versions of these reporting frameworks by the end of the year.
The regulatory also confirmed that given the “scale, complexity and magnitude of some of the changes” it does not intend to take enforcement action against firms that are not fully compliant as of 1 January 2021.
Entities or persons that are not able to not meeting all requirements straight away, but can show evidence they took “reasonable steps” to prepare to meet the new obligations by 31 December 2020 will be shown clemency, the FCA stated.
The regulator added: “Where firms and other regulated persons are not fully prepared by that date, we would expect them to comply with the new obligations as soon as reasonably practicable.”
SFTR
UK SFTR will be identical to the EU version which came into effect in stages throughout the year but will not include phase four, which relates to non-financial counterparties.
SFTR phase four goes live in January 2021 and therefore falls outside the transition period. The UK made a similar commitment to not onshore the Central Securities Depositories Regulation’s settlement discipline regime for the same reason.
These mark a few of the ways the UK and EU will diverge as of 2021.
Under UK SFTR, all financial counterparties, including third-country branches, central securities depositories (CSDs) and central counterparties (CCPs) who enter into SFTs must report to an FCA-registered trade repository (TR).
In addition, TRs will be required to provide the relevant UK authorities with access to that data.
However, the TTP will apply to SFTs where one of the counterparties is a member of the European System of Central Banks (ESCB). In these instances, entities should continue to report to the authorities they do now and will not simultaneously report to the FCA for a further 15 months as of 1 January.
This is important because the UK and EU are still yet to sign a bilateral equivalency decision for SFTR, meaning they are days away from being kicked out the other’s reported data pool.
A European Commission spokesperson tells SFT it remains able to make a decision up until the last moment of the year, but practical realities mean the window is all but shut.
MiFID II
To complicate matters further, unlike SFTR, where firms are subject to MiFIR transaction reporting obligations they will need to report these securities financing transactions to the FCA under the onshored MiFIR, where the counterparty is a member of the ESCB.
The UK’s transaction reporting regime under MiFID II will also change as a result of Brexit, including connected obligations such as the requirement to submit financial reference data.
This includes the need for trading venues to transaction reports for transactions on their venues by their European Economic Area (EEA) members, and EEA firms in the temporary permissions regime who operate through a UK branch to start transaction reporting to the FCA.
EMIR
Under EMIR, like SFTR, firms and CCPs entering into derivative transactions but also report to an FCA-registered TR. TRs are also required to share that data with UK authorities.
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