FCA publishes draft amendments to validation rules of SFTR
04 August 2023 UK
Image: IB Photography
The Financial Conduct Authority (FCA) has published draft amendments to the validation rules of the Securities Financing Transactions Regulation (SFTR).
The draft amendments have been put forward to support the ongoing reporting of securities financing transactions under the post-Brexit UK version of SFTR.
The FCA is proposing to use the EMIR Refit currency code validations (prohibiting special currency codes) and planning to include post-LIBOR benchmark interest rates such as €STR, SONIA and SOFR to the list of recognised floating rates and floating rebate rates.
The European version of SFTR establishes transparency requirements for financial market participants on the integration of sustainability risks and consideration of adverse sustainability impacts in their processes, as well as the disclosure of sustainability features of financial products.
Commenting on the FCA’s proposals, Kieran Millar, senior business consultant at AutoRek, says: “The reality is that these post-Brexit tweaks by the FCA do not fundamentally affect the overarching policy objectives of SFTR.
“Regardless of whether market participants are following the UK or EU version (or likely both), the central purpose of addressing the age-old issue of opacity in the under-reported world of repos and securities lending remains the same.”
He adds: “SFTR places paramount importance on data quality. For starters, asset managers need to be asking themselves daily if they can truly rely on delegating their reporting to third parties. Delegated reporting requires the documenting of total interest in a given stock to each prime broker. The trouble is that this information can often be left exposed.
“To ensure full compliance, asset managers need to know whether they can amend what’s being reported in their name, and how they can measure and provide full visibility into exactly what has been reported.”
The draft amendments have been put forward to support the ongoing reporting of securities financing transactions under the post-Brexit UK version of SFTR.
The FCA is proposing to use the EMIR Refit currency code validations (prohibiting special currency codes) and planning to include post-LIBOR benchmark interest rates such as €STR, SONIA and SOFR to the list of recognised floating rates and floating rebate rates.
The European version of SFTR establishes transparency requirements for financial market participants on the integration of sustainability risks and consideration of adverse sustainability impacts in their processes, as well as the disclosure of sustainability features of financial products.
Commenting on the FCA’s proposals, Kieran Millar, senior business consultant at AutoRek, says: “The reality is that these post-Brexit tweaks by the FCA do not fundamentally affect the overarching policy objectives of SFTR.
“Regardless of whether market participants are following the UK or EU version (or likely both), the central purpose of addressing the age-old issue of opacity in the under-reported world of repos and securities lending remains the same.”
He adds: “SFTR places paramount importance on data quality. For starters, asset managers need to be asking themselves daily if they can truly rely on delegating their reporting to third parties. Delegated reporting requires the documenting of total interest in a given stock to each prime broker. The trouble is that this information can often be left exposed.
“To ensure full compliance, asset managers need to know whether they can amend what’s being reported in their name, and how they can measure and provide full visibility into exactly what has been reported.”
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