DTCC and the SIO educated its members about critical regulations coming up in 2020 and how DTCC is preparing for their implementation.
According to Scottish Financial Enterprise (SFE), the financial services industry in Scotland employs almost 100,000 people directly and around the same again indirectly; generates about £8 billion for the Scottish economy, more than 8% of Scottish onshore economic activity; and manages over £800 billion of funds. One slice of that pie is represented by the Scottish Investment Operations (SIO), an industry body that oversees and seeks to further develop the financial services ecosystem. DTCC teamed up with the SIO to educate its members about two critical regulations coming up in 2020 and how DTCC is preparing for their implementation.
Raymond Wales, Chief Executive Officer, SIO, welcomed guests to the industry event in Edinburgh, which was hosted by global investment manager Baillie Gifford. DTCC experts presented to more than 50 asset management and asset servicing clients about two ingredients in the alphabet soup: the Central Securities Depositories Regulation (CSDR) and Securities Financing Transactions Regulation (SFTR), and indeed their impact on operations. Among the firms represented were Aberdeen Standard, Bank of America Merrill Lynch, Barclays, BlackRock, BNP Paribas, First State, Franklin Templeton, HSBC, J.P. Morgan Chase, Kames Capital, Morgan Stanley, Stewart Investors and Walter Scott.
While the two regulations are focused on achieving different goals, both are significant to the community. SFTR is the European Union’s (EU) response to the Financial Stability Board’s (FSB) policy proposals and which aims to enhance the transparency of securities financing transactions reporting to a registered trade repository, such as DTCC’s Global Trade Repository (GTR) service. Overseen by the European Securities Market Authority (ESMA), CSDR focuses on creating a much more robust settlement environment. DTCC’s Exception Manager (DXM) platform is well-positioned to support that objective. Last month, DXM passed a significant milestone, managing over two million records related to 849,556 transactions/trades/exceptions and representing over $100 billion in market activity.
During the event, DTCC provided a detailed overview of the regulations, optimal timelines for compliance and what constitutes a best practice approach to preparations.
"Market participants have under a year to go before the implementation of the Settlement Discipline Regime (SDR), CSDR’s final and most significant phase, which is poised to have tremendous impact on the industry due to the mandatory penalties and buy-in regime for trades that fail to settle on time," said Simon Daniel, Director at DTCC. "In order to avoid such burdens, it is imperative that market participants need to have gone through the necessary steps in order to be ready for the deadline, including analysing the reason for their failed trades; addressing these issues through the adoption of a best practice approach to post-trade processing; together with testing new systems and processes which have been implemented. It is a sizeable to-do list, but firms who cross off those items will not only be well-placed to comply with SDR, they will also benefit from the wider operational efficiencies which post-trade automation delivers."
"There are six months to go until the introduction of the SFTR for the broker-dealer community and a year until the implementation date for the buy-side/asset managers,” said Jacqueline Rulloda, an Associate Director at DTCC. “While the broker-dealers have made good progress in their readiness for SFTR implementation, the smaller and medium-sized asset managers have much further to go in their preparations in order to be compliant in time."
"Further, for those buy-side firms that lack the resources to build and manage technology for their own transaction reporting, delegated reporting – where the asset manager outsources its reporting to the dealer community – is an attractive proposition; however, issues related to this have emerged around areas such as collateral reuse," said Jemma Freeman, an Associate Director at DTCC. "Therefore, buy-side firms need to prioritise SFTR readiness now, to ensure that they have ample time to implement the optimal model for their needs, which may include assisted reporting, whereby service providers help buy-side firms to fulfil their obligations while easing the burden for dealers."
DTCC has had a presence in Europe for 25 years and supports a variety of businesses involved in the post-trade lifecycle. We closely follow geopolitical events, such as the UK’s expected departure from the EU, and endeavour to enhance our solutions to help our clients meet forthcoming requirements under European regulations.