COVID-19: Phase 1 of SFTR delayed

The European Securities and Markets Authority (ESMA) has issued a public statement to announce the delay of the industry’s compliance with phase one of the Securities Financing Transactions Regulation (SFTR). This is in response to ESMA’s awareness of the financial industry’s struggle to devote resources to comply with the new reporting obligation, as firms face the challenges of the COVID-19 pandemic and the measures taken by Member states to prevent it from spreading. 

SFTR requires firms to report the details or amendments of any Securities Financing Transactions (SFTs) to a registered Trade Repository (TR), no later than the working day following modification of the respective transaction. SFTR follows a phased-in approach with regards to its implementation timeline as different kind of firms need to start reporting their SFTs by different dates:

SFTR’s reporting timeline

ESMA has acknowledged that all counterparties face severe resource restrictions in their preparation to comply with the new reporting requirements.  In response, it has allowed credit institutions, investment firms and relevant third-country firms’ to push back TR reporting requirements to 13 July 2020, instead of 13 April 2020,  in line with Central Security Depositories (CSDs) and Central Counterparty Clearing Houses (CCPs). In addition, the European watchdog advises competent authorities not to prioritise their supervisory actions under SFTR and MIFIR in respect of the Phase 1 reporting obligations.  Furthermore, ESMA does not view it as mandatory to register any TR before 13 April 2020 to give TRs more time to deal with the emergency, and be better prepared to support the new reporting regime at a later point in the future.

ESMA published its statement after its chairman, Steven Maijoor, received a letter from the International Securities Lending Association (ISLA) and the International Capital Market Association (ICMA) describing how the pandemic has affected their members’ preparation plans to comply with SFTR on time. The two associations suggested a deadline extension in line with Phase 3, i.e. 11 October 2020. Even though their request was not fully met, their members have welcomed the additional time given to prepare effectively for SFTR.

However, ESMA can’t officially enact the announced delay as the European Parliament and Council are the only authorities able to enforce a formal delay to SFTR’s timetable. ICMA and ISLA noted in their letter that in case a formal delay is not possible, regulatory authorities should assess the challenges faced due to COVID-19 and “to consider equivalent measures that would provide forbearance and sufficient reassurance”[1] for firms not able to comply with SFTR reporting obligations on time. Since ESMA is not able to officially enforce any delay, it falls onto the national competent authorities to take the appropriate actions or, in this case, not to prioritise the SFTR enforcement…for the time being.

Article written by Grigorios Alogoskoufis and Pauline Pélissier. 

[1] https://www.icmagroup.org/assets/documents/Regulatory/Repo/SFTR/ICMAISLAlettertoESMASFTR-and-COVID-19-170320.pdf