Making a success of SFTR

Jo Hide - Thought Leadership Feature in ISLA SL Market Report 2018


This article was first published in the ISLA SL Market Report on 1 March 2018

Executive summary

This time next year, we expect firms will be progressing well through their SFTR transaction reporting projects and gearing up to start sending the first records to Trade Repositories (TRs) across Europe. As with OTC derivatives before, this transaction reporting is a new endeavour in the Securities Financing and Repo world, with new terminology, new workflows and, inevitably, new concerns arising as the reporting start date approaches. As one of the largest TR under EMIR, and a future TR for SFTR, we answer some of the questions that we are being asked about the new regime. Most importantly, we look at how you can make a success of SFTR.

The concerns

As a TR, we hear two main refrains when we speak to the SFT industry about SFTR reporting, and they both relate to the Inter-TR reconciliation:

  1. If we use a different Trade Repository to our counterparty, we will never get anything to match in the Inter-TR reconciliation.
  2. There is no way we are going to be able to match every field exactly with our counterparty.

The reality

On the first point, the first step to successful reconciliation is ensuring that you report with the same UTI and LEIs as your counterparty that requirement is the same whether you report to the same TR as your counterparty or a different one. On that basis, there is no benefit to “letting the reconciliation tail wag the reporting dog” you are free to choose the reporting service and TR expertise that best support you and your business needs.

On the second point, and contrary to popular belief, the Inter-TR reconciliation does not expect a perfect match on every field. TRs jointly apply various common-sense methods to reduce extraneous reconciliation failures under EMIR reporting.

Our recommendations

Given what we know of reporting under EMIR, of what works not just in terms of carrying out the reporting in a timely and accurate manner, but also that all-important Inter-TR reconciliation process, we note that the following strategies have been the most effective in getting high rates of reconciliation success:

  • Delegating reporting to your counterparty
    In order to simplify workflows between counterparties, we recommend considering delegating your reporting to your Clearer, Lender or Broker if they are offering that service.
  • Using a third party
    Some third parties offer a full end-to-end service, whereas others will prepare the data records for you so that you can send them to your TR yourself.
  • Sharing the UTI itself, not the UTI generation algorithm
    This requires a new workflow to be put in place but guarantees that the same UTI will be used by both parties when they report the trade, going a long way to ensuring trade pairing takes place successfully.
  • Working actively to resolve issues:
    As we’ve seen with some of the areas we’ve focused on with our clients, the hard work pays off and, given the amount of data to be reported, issues which are left unchecked only compound and create knock-on effects.

Pragmatically speaking, perfection is not expected on day one, however, regulators have promised that “non-compliance will always be more expensive than compliance” and arguably the total cost of compliance is more than just the monthly fee you pay to your service provider or TR. Due diligence in evaluating the various service offerings that are starting to surface will reap dividends in the long run, demonstrating to senior management, regulators and clients alike that the necessary systems and controls are in place and avoiding the financial and reputational damage that accompanies a breach.