Time is running out
12 November 2019
David Lewis of FIS surveys the state-of-play for the industry in the final run up to SFTR and addresses the many hurdles yet to be cleared
Image: Shutterstock
If there were a list of phrases rarely heard, “that regulation came around quickly” is, I would venture, quite near the top, probably somewhere near “Brexit is easy, isn’t it”.
However, here we are, around five months away from the potentially seismic impact of Securities Financing Transactions Regulation (SFTR). It seems like something that has been in the far distance for so long is suddenly around the corner. And it appears not everyone is on schedule, including the regulator itself.
A survey by the regulatory reporting provider, Cappitech, covered recently in Securities Lending Times, announced that two-thirds of firms will not be fully ready for SFTR go-live. The survey covered a wide range of firms, from banks and asset managers to trade repositories and non-financial entities, but that does not detract from the worrying headline. SFTR can in no way be described as news to any direct or indirect participant in the securities finance industry, whether inside the jurisdiction of European Securities and Markets Authority (ESMA) and the EU, or outside of it. However, according to the Cappitech survey, 11.5 percent have not started planning yet. Of course, if that contingent is made up of the non-financial entities that took part in the survey, then it could be understood. If that is not the case, some organisations are certainly appearing to be leaving this to the last minute.
It has also been a long road to get to this point. FIS has put significant resources into the analysis, design and development of our SFTR solutions, but that project, along with the work of every other provider and market participant, has been at the mercy of the regulator’s timetable. Taking the logical approach of matching work plans with the roll out of the regulation itself, we are all looking to the actual reporting outputs. Most will have already worked through all the sourcing, storing and management of new data elements to the re-engineering of booking and trade management processes, leaving report generation to the end, in line with the release of the XML schemas from ESMA. Now, it appears the schemas are not only being issued behind schedule, but they continue to include errors.
The timetable for issuance of the schemas was always going to be tight, particularly when accounting for the major project milestones to be considered in the run-up to go-live, such as connectivity to your chosen trade repository, testing and, of course, a healthy dose of contingency. Factor-in the impending Christmas break in the middle of the remaining timeframe with the associated year-end freezes, and suddenly the headline shouting that two-thirds of firms potentially not being ready starts to look not only believable, but perhaps even a little low!
The roll out of the predecessors of SFTR, namely the European Market Infrastructure Regulation and the Markets in Financial Instruments Directive, were beset with issues at go-live, not least due to the sheer quantity of participants seeking to complete their projects in the weeks, or even days, before the regulatory go-live date.
A contact at one trade repository recounts the story of a major firm contacting them on the last Friday before go-live, demanding 5,000 new accounts be set up for the Monday. While the example may not translate perfectly to the implementation of SFTR, the risk of not allowing every stakeholder in your process time to get up-to-speed is clearly illustrated. According to the survey, 7 percent of firms are planning to do just that – rush the testing stage through in the last month before go-live. Perhaps more alarmingly, 11 percent indicated that they were not planning to test at all. Again, as above, if these are the non-financial firms in the survey, who have outsourced their reporting to their counterparts, then perhaps that is less of a concern, if they are paying proper attention to their oversight responsibilities, of course.
For the remaining companies, it may well be admirable for your firm to be ready, but what about your market counterparts, and those providing services to you? Those leaving testing so late will put providers and their counterparts under serious and unwelcome pressure. One service provider has recently issued a sign-up deadline, which is understandable. At FIS we have been assisting our own clients through the necessary upgrades and changes required; this is not a do-it-yourself exercise for any stakeholder.
Business process re-engineering is a potentially substantial segment of the SFTR readiness project for any market participant. Considering the relationship between market participants, their counterparts and providers, much is potentially going to have to change, and unless that is already well under way, it may already be too late.
To learn from the Cappitech survey that only 28 percent of firms had started implementing their solution would suggest that this part of the project may well be building-up significant go-live risk. Have all the market participants within the jurisdiction of ESMA compared their booking, re-rating and return processes to ensure their trades have a good chance of matching at the trade repository? Have those same participants agreed at a counterparty specific level who is going to produce and who will receive the unique trade identifier (UTI)?
Given all that could go wrong with the roll out of SFTR, and arguably already has in terms of the issues with the original reporting specifications, their multiple revisions, the unanswered queries and now the reporting XML schemas, it is perhaps most surprising that 9 percent of the respondents to this survey claimed to be “fully ready”.
With so many potential gaps and issues, this number appears to be very high, excluding the chance that they are outsourcing their reporting and have nothing more to do. Either that, or they have totally misunderstood the gravity of SFTR and its requirements.
Many column inches have been spent on the genesis, roll-out and now impending implementation of SFTR. As an industry, we have had ample time to prepare for the launch of what will be the most detailed reporting requirements to affect our business ever. As a result, it would not be unreasonable to assume that the regulator could justifiably take a dim view of market participants who are not ready to comply through a simple lack of effort or organisation.
However, it is also true to say that there have been more than a few bumps in the road as the industry has moved toward implementation, providing some justification for issues that may arise next April. Given some of the worrying statistics in the Cappitech survey, it appears that it is not a question of whether there will be issues, but how bad they will be for those that are not sufficiently prepared.
However, here we are, around five months away from the potentially seismic impact of Securities Financing Transactions Regulation (SFTR). It seems like something that has been in the far distance for so long is suddenly around the corner. And it appears not everyone is on schedule, including the regulator itself.
A survey by the regulatory reporting provider, Cappitech, covered recently in Securities Lending Times, announced that two-thirds of firms will not be fully ready for SFTR go-live. The survey covered a wide range of firms, from banks and asset managers to trade repositories and non-financial entities, but that does not detract from the worrying headline. SFTR can in no way be described as news to any direct or indirect participant in the securities finance industry, whether inside the jurisdiction of European Securities and Markets Authority (ESMA) and the EU, or outside of it. However, according to the Cappitech survey, 11.5 percent have not started planning yet. Of course, if that contingent is made up of the non-financial entities that took part in the survey, then it could be understood. If that is not the case, some organisations are certainly appearing to be leaving this to the last minute.
It has also been a long road to get to this point. FIS has put significant resources into the analysis, design and development of our SFTR solutions, but that project, along with the work of every other provider and market participant, has been at the mercy of the regulator’s timetable. Taking the logical approach of matching work plans with the roll out of the regulation itself, we are all looking to the actual reporting outputs. Most will have already worked through all the sourcing, storing and management of new data elements to the re-engineering of booking and trade management processes, leaving report generation to the end, in line with the release of the XML schemas from ESMA. Now, it appears the schemas are not only being issued behind schedule, but they continue to include errors.
The timetable for issuance of the schemas was always going to be tight, particularly when accounting for the major project milestones to be considered in the run-up to go-live, such as connectivity to your chosen trade repository, testing and, of course, a healthy dose of contingency. Factor-in the impending Christmas break in the middle of the remaining timeframe with the associated year-end freezes, and suddenly the headline shouting that two-thirds of firms potentially not being ready starts to look not only believable, but perhaps even a little low!
The roll out of the predecessors of SFTR, namely the European Market Infrastructure Regulation and the Markets in Financial Instruments Directive, were beset with issues at go-live, not least due to the sheer quantity of participants seeking to complete their projects in the weeks, or even days, before the regulatory go-live date.
A contact at one trade repository recounts the story of a major firm contacting them on the last Friday before go-live, demanding 5,000 new accounts be set up for the Monday. While the example may not translate perfectly to the implementation of SFTR, the risk of not allowing every stakeholder in your process time to get up-to-speed is clearly illustrated. According to the survey, 7 percent of firms are planning to do just that – rush the testing stage through in the last month before go-live. Perhaps more alarmingly, 11 percent indicated that they were not planning to test at all. Again, as above, if these are the non-financial firms in the survey, who have outsourced their reporting to their counterparts, then perhaps that is less of a concern, if they are paying proper attention to their oversight responsibilities, of course.
For the remaining companies, it may well be admirable for your firm to be ready, but what about your market counterparts, and those providing services to you? Those leaving testing so late will put providers and their counterparts under serious and unwelcome pressure. One service provider has recently issued a sign-up deadline, which is understandable. At FIS we have been assisting our own clients through the necessary upgrades and changes required; this is not a do-it-yourself exercise for any stakeholder.
Business process re-engineering is a potentially substantial segment of the SFTR readiness project for any market participant. Considering the relationship between market participants, their counterparts and providers, much is potentially going to have to change, and unless that is already well under way, it may already be too late.
To learn from the Cappitech survey that only 28 percent of firms had started implementing their solution would suggest that this part of the project may well be building-up significant go-live risk. Have all the market participants within the jurisdiction of ESMA compared their booking, re-rating and return processes to ensure their trades have a good chance of matching at the trade repository? Have those same participants agreed at a counterparty specific level who is going to produce and who will receive the unique trade identifier (UTI)?
Given all that could go wrong with the roll out of SFTR, and arguably already has in terms of the issues with the original reporting specifications, their multiple revisions, the unanswered queries and now the reporting XML schemas, it is perhaps most surprising that 9 percent of the respondents to this survey claimed to be “fully ready”.
With so many potential gaps and issues, this number appears to be very high, excluding the chance that they are outsourcing their reporting and have nothing more to do. Either that, or they have totally misunderstood the gravity of SFTR and its requirements.
Many column inches have been spent on the genesis, roll-out and now impending implementation of SFTR. As an industry, we have had ample time to prepare for the launch of what will be the most detailed reporting requirements to affect our business ever. As a result, it would not be unreasonable to assume that the regulator could justifiably take a dim view of market participants who are not ready to comply through a simple lack of effort or organisation.
However, it is also true to say that there have been more than a few bumps in the road as the industry has moved toward implementation, providing some justification for issues that may arise next April. Given some of the worrying statistics in the Cappitech survey, it appears that it is not a question of whether there will be issues, but how bad they will be for those that are not sufficiently prepared.
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