Even though it occurred in the middle of a global pandemic, the implementation of phases one and two of the Securities Financing Transactions Regulation (SFTR), one of the industry’s most complex regulations, has been successful for DTCC’s clients as they, over two months in, continue without major hiccups to report their securities financing transactions (SFTs) to our Global Trade Repository (GTR) service licensed trade repositories.
We can measure this success by two indicators: 1) acceptance rates for reported transactions have been very high – in fact higher than for European Markets Infrastructure Regulation (EMIR) reporting, and 2) our clients have already been able to move beyond basic reporting and focus their attention on the reconciliation of transactions. Previously, with regulations like EMIR, firms spent weeks stabilizing their reporting before addressing reconciliation.
Why such success despite the difficult conditions Covid-19 has imposed on operations in 2020? The three-month delay in SFTR phase one implementation, from April to July, certainly helped by giving the already well-prepared sell-side community even more time to get ready. But even more critical were the lessons we along with our clients and vendor partners learned from prior regulatory reporting mandates and have applied here.
One lesson was to build in an especially long prep time. Our timeline for SFTR testing was longer than it’s ever been: our user-acceptance testing (UAT) environment opened to vendor firms in August 2019 and clients could begin testing from October. Then we opened our pre-production environment in March to allow for more sophisticated testing and even greater levels of day-one preparedness.
We designed our entire testing effort to be proactive in seeking out the technical issues clients were encountering and working with them to resolve the issues quickly. Additionally, we fortified our testing capabilities by collaborating with Delta Capita to provide clients with test packs that streamline their testing processes.
Two more factors have supported our clients’ successful experience with SFTR. One is our extensive education program, delivered through ongoing webinars and learning resources, that spells out key requirements of the regulation and answers clients’ questions. The other is the DTCC Report Hub® service, a new offering we launched earlier this year. The DTCC Report Hub service is a customizable, multi-function toolbox for pre- and post-reporting tasks that helps our clients navigate complex data and operational challenges of SFTR compliance.
Notwithstanding the generally smooth launch of SFTR reporting in July, the industry has faced some challenges, mostly because the regulator’s issuance of the required ISO XML message schema and technical guidelines just a few months before go-live gave firms little time to finalize how they would undertake reporting.
While the July launch covered CCPs, CSDs and sell-side firms, the buy-side community will come into SFTR scope in October. These firms have had more time to prepare, however many of them have comparatively fewer technology and staffing resources for compliance than their dealer counterparties. They must also decide whether to delegate any of their reporting to counterparties. From our ongoing discussions with clients, it appears that many will opt to retain collateral reuse reporting in-house and they will have to ready their systems to perform that activity. Despite some challenges, we are seeing encouraging signs of reporting readiness from our buy-side clients and DTCC will continue to dedicate extensive resources to prepare them for a successful SFTR implementation.
This article originally appeared in IHS Markit’s SFTR Newsletter, September 2020.