Transparent securities financing transactions

KEY POINTS

The regulation establishes European Union (EU) rules for the reporting of details of SFTs to trade repositories, for information on SFTs and total return swaps⁴ to be disclosed to investors in collective investment companies and for minimum transparency conditions to be met by the parties involved in collateral reuse.

Reporting

• Counterparties to SFTs have to report the details of any SFT they have concluded, along with any modification or termination, to a central database (trade repository) registered with the European Securities and Markets Authority (ESMA) or recognised in accordance with this regulation.
• Those details must be reported no later than the working day following the conclusion, modification or termination of the transaction.
• Counterparties must keep records of all SFTs that they have concluded, modified or terminated for at least five years following the termination of the transaction.

In this respect, ESMA must develop:

• draft regulatory technical standards specifying the details of the reports for the different types of SFTs; and
• draft implementing technical standards specifying the format and frequency of the reports for the different types of SFTs.

These technical standards are subsequently scrutinised and adopted by the European Commission as delegated acts or implementing acts.

Transparency for investors

• Managers of collective investment companies should include detailed information on their use of SFTs and total return swaps in regular reports so that investors are aware of the risks associated with their use.
• A collective investment company’s investment policy with respect to SFTs and total return swaps should be clearly disclosed in the pre-contractual documents.

Transparency of reuse

• To increase transparency on the extent of reuse of financial instruments provided as collateral, in particular regarding the respective risks and consequences, for example in the case of bankruptcy, the regulation imposes minimum information requirements.
• Reuse should take place only under the following conditions:
  • the prior consent of the providing counterparty to a security collateral arrangement, or the express agreement to provide collateral by way of a title transfer; and
  • the transfer of the collateral from the account of the providing counterparty.

Cooperation between competent authorities

• Competent national authorities and ESMA must cooperate closely and exchange information, in particular to identify and remedy infringements of this regulation. The entities that have access to data stored in trade repositories (e.g. supervisory authorities) and the relevant members of the European System of Central Banks must also cooperate closely in accordance with certain conditions.
• A competent authority may refuse to act on a request to cooperate and exchange information, in exceptional circumstances.

Professional secrecy

Any confidential information received, exchanged or transmitted pursuant to this regulation is subject to the conditions of professional secrecy.

Relationship with non-EU countries

• The regulation grants the Commission the power to assess the rules of non-EU countries for the purposes of recognising trade repositories in non-EU countries, and in order to avoid potentially duplicate or conflicting requirements.
• A trade repository established in a non-EU country may provide services to entities in the EU only after recognition by ESMA. ESMA must publish on its website a list of the trade repositories recognised in accordance with this regulation.

Sanctions

EU Member States must ensure that competent authorities have the power to impose administrative sanctions and other administrative measures that are effective, proportionate and dissuasive.

Certain essential requirements apply in relation to the:

• criteria to be taken into account when applying a sanction or measure;
• publication of sanctions or measures;
• nature and types of sanctions and measures; and
• levels of administrative monetary sanctions.

Delegated acts

The Commission has adopted a series of delegated acts supplementing or amending the regulation. These regulations supplement Regulation (EU) 2015/2365 with regard to regulatory technical standards:

• specifying the details of SFTs to be reported to trade repositories;
• on access to details of SFTs held in trade repositories;
• on the collection, verification, aggregation, comparison and publication of data on SFTs by trade repositories; and
• specifying the details of the application for registration and extension of registration as a trade repository.

Further delegated regulations concern:

• the fees charged by ESMA to trade repositories; and
• an amendment to the list of exempted entities (which concerns UK entities following the country’s withdrawal from the EU as of 1 February 2020).

Implementing acts

The Commission has also adopted three implementing acts.

• Regulation (EU) 2019/363 lays down technical standards for the format and frequency of reports on the details of SFTs to trade repositories.
• Regulation (EU) 2019/364 lays down technical standards for the format of applications for registration and extension of registration of trade repositories.
• Regulation (EU) 2019/365 lays down implementing technical standards for the procedures and forms for exchange of information on sanctions, measures and investigations.

Progress

Within 36 months of the entry into force of the regulatory technical standards that it adopts, the Commission must submit a report to the European Parliament and to the Council of the European Union. This report will cover the effectiveness, efficiency and proportionality of the obligations laid down in this regulation and may be accompanied by appropriate proposals.

The Commission also submitted a report on progress in international efforts to mitigate the risks associated with SFTs on 19 October 2017.