Implementing SFTR Reporting: The Straw That Broke The Camel’s Back?

A plan endorsed by G20 member states to boost transparency and facilitate global financial stability more than 10 years ago has led to more stringent reporting requirements across global trade and transaction regimes. As counterparties scramble to keep up, the recent addition of SFTR reporting (Securities Financing Transactions Regulation) is an additional challenge in an already onerous scenario. In fact, the complex requirements of this regime may be the last straw for overburdened compliance teams.

On a daily basis, reporting organizations are contending with issues regarding data quality, tight timelines, and siloed processes as they report to trade repositories (TRs). In addition, effects of the COVID-19 pandemic mean that stretched resources and increased regulatory scrutiny have been added to the load they are already carrying.

Lugging A Heavy Load Across The Desert – All In A Typical Day’s Work

Many reporting organizations’ compliance teams are continuously managing the high volume of required reportable transactions across global trade and transaction regimes — but with no end in sight. For them, the pressure is great to stay on top of daily transactions so as to be in full compliance within tight timelines and across regimes, particularly given new SFTR reporting requirements.

A typical day for a compliance officer at a reporting organization may begin with the processing of the first batch of trades, including delegated ones. This first batch may often include a number of errors to be addressed. These errors, including pairing/matching, must be dealt with promptly because new batches of trades tend to follow in rapid succession with the number of trades to be reconciled increasing throughout the day. If by midday, the compliance teams have caught up with batch processing and error reconciliation, they are on track to meet TR requirements. However, this may or may not be the case, as many attempt to manually rectify errors from the previous day while continuing business as usual with a new set of trades for the current day.

Organization systems are often opaque and lack traceable data drilldown, making the error rectification process very cumbersome. At the end of the trading day, potentially hundreds or thousands of problems with trade reconciliations may need be rectified before being sent for overnight batch processing. Compliance teams log off hoping that their reconciliations will be error free, but given that data quality can be problematic, this is unfortunately not always the case.

As the following workday begins, compliance teams first may need to deal with any problems that were flagged by TRs on the overnight submissions. And then, their typical trading day starts again, some feeling they may be sinking into quicksand.

Mounting Pressures

CamelPyramidWeb2A plan to increase transparency and facilitate financial stability should certainly have a positive effect on standardizing reporting. So how did trade and transaction reporting get so complicated for organizations?

The list of financial reporting regimes implemented over the past 10 years includes MiFID, Dodd Frank, EMIR, MAS, ASIC, and FinfraG. With the addition of each new regime, counterparties have had to contend with:

  • Expanding requirements
  • Addressing data quality issues
  • Determining reporting eligibility
  • Resolving data quality exceptions

 

SFTR Reporting: The Last Straw?

The European Commission’s European Securities and Markets Authority (ESMA) introduced SFTR reporting to give regulatory authorities a comprehensive overview of the market for securities financing transactions. The objective was to identify and monitor financial stability risks that may arise from shadow banking activities. The requirements affect a broad range of trades and reporting organizations.

To date, SFTR is the regime with the most complex set of requirements.

Organizations need to prepare for SFTR reporting: Let AxiomSL help you get over the hump, read our thought-provoking article by completing the form below:

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