SFTR complexity needs expert handling

John Kernan interview with Global Investor


This article was first published in Global Investor on 13 February 2018

The complexity of the upcoming Securities Financing Transaction Regulation (SFTR) reporting rules requires expertise at the trade repository (TR) level, according to Regis-TR.

“Market participants should not simply throw SFTR flow to their existing trade repository - SFTR is a specialised niche and will therefore require someone with expertise and appropriate service support in order to handle it,” John Kernan, Regis-TR’s head of product management, told Global Investor.

“Regulatory reporting is not just machine to machine straight-through processing, there is a degree of exception management that needs to be considered and the regulatory environment is fluid,” he added.

The introduction of the regulation is set to impose a number of challenges as firms strive to gather the vast amount of required data, spanning over 150 fields.

“In order to cater for a more end-to-end SFTR reporting solution, Regis-TR will offer its customers a choice of different reporting systems, for which it cooperates with IHS Markit and Pirum,” Kernan said, explaining that the extension will make Regis-TR the sole entity able to address all of Europe’s G20 reporting regimes under the single roof of Deutsche Börse Group.

He added: “We are also in discussions with further leading intermediaries and plan to have full interoperability with them.”

Despite the challenges for firms and intermediaries created by the fact that SFT data in its current form is highly fragmented, the regulation considered to be “cleaner than European Market Infrastructure Regulation (Emir)” from the TR’s perspective.

Kernan suggests that the phasing in of reporting requirements and mandatory use of ISO 20022 will be helpful, as data quality issues will be resolved upstream of the TR, while the protocols for legal entity identifiers and unique transaction identifiers are now much more established than they were at the outset of Emir.

The next steps for the Luxembourg-based trade warehouse, which already centrally collects and maintains records of over-the-counter (OTC) derivatives under Emir, will be to set up a test environment, have legal documents in place and produce a fee schedule.

“Many clients view the reporting as a tax on doing business with no direct benefit and naturally they are price sensitive,” Kernan said.

“For market participants, one of the most important things will be the testing,” according to Kernan, echoing industry views that firms should be acting now to ensure they are compliant when the requirements are applicable early next year.