From crisis to confidence
31 March 2026
The Securities Financing Transactions Regulation was proposed following the 2008 financial crisis. Now, 10 years since it was first implemented, Hansa Tote explores its impact on the market, and what needs to be done to further improve this regulation
Image: stock.adobe.com/psychoshadow
There were a number of groundbreaking milestones 10 years ago — Leonardo DiCaprio won his first Oscar, the UK left the European Union, and Rio de Janeiro hosted the summer Olympics.
In that same year, the Securities Financing Transactions Regulation (SFTR) first entered into force on 12 January 2016.
From the shadows
The European Commission originally proposed the SFTR in 2014, with the aim of increasing transparency in the European securities financing markets by identifying and quantifying risks affiliated with shadow banking (now known as non-bank financial intermediation), following the 2008 financial crisis.
Jonathan Lee, senior money markets reporting director at Kaizen Reporting, explains that the crisis provoked global regulators to put a spotlight on both financial derivatives and securities financing markets. Reporting regimes including SFTR and the European Market Infrastructure Regulation (EMIR) were established to identify national, regional, and global macro systemic risks in these markets. The Financial Stability Board (FSB) published a paper entitled ‘Standards and Processes for Global Securities Financing Data Collection and Aggregation’ in November 2015, which was followed very shortly by the European Parliament and Council of Ministers publishing ‘Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012’ in December 2015.
SFTR intended to increase transparency in the market in three ways: imposing conditions on the reuse of collateral to ensure clients and counterparties fully understand the risks involved and give their consent to the reuse; mandatory reporting for all securities financing transactions (SFTs), excluding those concluded with central banks, to trade repositories; and requiring investment funds to disclose information on the use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents.
You’ve changed
New regulations often equal changes in market behaviour.
REGIS-TR, a European trade repository (TR) that provides centralised reporting services for derivatives, securities financing transactions, and regulatory obligations under EMIR, UK EMIR, SFTR, and FinfraG, has several corporate treasurers as its members, according to Maria Santos, head of trade repositories at SIX. She elaborates that previously, it was the norm for them to have invested in a very small number of securities lending or repo transactions to achieve secured deposits of spare cash, however, SFTR introduced a disproportionate operational overhead for these types of entities, causing many of them to change their behaviour and move their cash into non-reportable instruments such as money market funds (MMFs).
Santos adds that, as with the implementation of any reporting regulation, the discipline of reporting to defined technical specifications drives the standardisation of operational processes such as trade capture, data enrichment, exception handling, and lifecycle management, which often leads to greater front?to?back alignment, improved data quality, and more consistent controls across the organisation.
According to Michele Hillery, managing director, head of Repository & Derivatives Services, at the Depository Trust & Clearing Corporation (DTCC), SFTR has impacted the market in three main ways.
Hillery elaborates that the structural shift towards transparency and internal discipline allowed firms to strengthen their front to back controls as it relates to the reportable products and events. As a result, firms now operate with greater awareness of regulatory obligations with the introduction of Entity Responsible for Reporting (ERR).
She highlights that the increased focus on collateral reuse and balance sheet enables firms to be more selective and controlled in collateral reuse chains in cross border relationships. This supports collateral optimisation and inventory management to be more data-driven as market participants factor in reportability and data quality into product design and booking models.
Hillery concludes that SFTR increased operational standardisation, but limited market simplification, highlighting there is more investment in reporting infrastructure, reconciliation tools, and third-party service providers, creating greater alignment around common data models, standard identifiers, and lifecycle interpretations. She adds the caveat that, despite the positives, the regime has exposed the inherent complexity of securities lending.
Providing a recent example of how SFTR has altered market behaviour, Duncan Carpenter, head of Securities Lending Post Trade at Pirum, notes the “significant” amount of discussion and planning required to ensure clients could continue to comply with SFTR as they began trading on Cboe Clear Europe’s new central counterparty (CCP), which is supported by Pirum’s ClearingConnect platform.
Geopolitics versus regulation
Geopolitical tensions can and often do have negative impacts on financial markets, in some cases causing market instability, high inflation rates, and investor uncertainty, and SFTR is no exception.
According to Santos, Brexit created the most significant shift for the regulatory framework by splitting the framework into two separate regimes — EU SFTR under the European Securities and Markets Authority (ESMA), and UK SFTR under the Financial Conduct Authority (FCA) — each with its own technical standards.
Since Brexit, updates from ESMA and the FCA have begun to diverge, increasing operational complexity for firms that must comply with dual reporting, differing validations, and asynchronous regulatory guidance, she adds.
“Despite the added operational burden for cross?border participants, there is no evidence from SFTR public data that this divergence has negatively affected repo or securities lending market liquidity,” Santos notes.
Carpenter concurs, noting that from an operational perspective, clients effectively have to maintain two different versions of the rule, which have diverged in their interpretation of the regulation. He does however add that the regulations have remained “fairly well aligned”, with cross-border double reporting problems having been largely resolved through Pirum’s joint reporting module with S&P Cappitech.
On the other end of the spectrum, Hillery says that SFTR UK remains “closely aligned” with SFTR EU, reflecting the UK’s onshoring of the regulation following Brexit. There are minor differences in rules, she adds, specifying that these differences are found in reporting frequency, most notably in the EU where TR reports are not generated on days designated as TARGET2 holidays.
However, she underscores that while the changes may not have disrupted liquidity at a systemic level, there are operational impacts for cross-border participants and firms must maintain dual reporting logic, even where underlying transactions are economically identical.
Reviewing the impact of Brexit on SFTR, a spokesperson from ESMA believes it added an additional layer of complexity to the reporting ecosystem for market participants in both the UK and EU.
Focusing on the role the authority played in the go-live of SFTR, the ESMA spokesperson noted that, because Brexit and SFTR were implemented in a close time window, extra efforts were required by ESMA and the industry to ensure the introduction of the reporting regime happened smoothly.
Delving into the issues caused by Brexit, the spokesperson states that while contingent data quality issues might have emerged, efforts both from regulators and reporting counterparties ensured that they were solved in a timely manner. Brexit also triggered several changes in the trade repositories market structure driving the decision of some pre-Brexit TRs to no longer offer their services in the EU.
“Volumes of SFTs reported to EU TRs decreased due to Brexit and UK counterparties no longer reporting to European Trade Repositories,” they add.
Persistent pain points
Introducing new reporting regulation has been no small feat, with Carpenter noting that reference data is always difficult to manage. The volume of data points combined with the strict matching tolerances that ESMA detailed in SFTR pose a number of challenges to all reporting firms, he adds.
“Although there has been great collaborative work across various industry groups to agree common interpretations and approaches to help minimise the potential for differences, there are still cases where reporting firms are approaching the same field differently, leading to differences in the values reported to the TR, particularly where firms aren’t using centralised processes to agree common values for elements such as price,” Carpenter concludes.
For Lee, the biggest challenge is data quality. SFTR has up to 155 fields, many of which still lack regulatory certainty, despite it being almost six years since the go-live. He elaborates: “Some aspects of the regulation — such as the treatment of optional fields — still have to be proactively and diligently sought out, hidden in the depths of the general information on the validation rules and easily missed.
“Certain fields are not nearly as well defined as necessary — security and collateral type, maturity of the security, and floating rate are prime examples. It is also not evident which lifecycle events should be reported on a mandatory basis nor the approach firms should take.”
To counter these challenges, Lee suggests that improving the accuracy, completeness, and timeliness of reported SFTR data is critical for regulators to be able to fully rely on the data to detect systemic risk.
Santos agrees that data quality poses challenges, drawing attention to ESMA’s annual report on data quality which identifies trade?level mismatches, outdated and missing valuations, and inconsistencies in position?level reporting as the most persistent and severe SFTR data quality issues. According to Santos, these deficiencies “materially impede” ESMA’s ability to monitor systemic risk, collateral flows, and counterparty exposures, particularly during periods of market stress. She adds that the usefulness of SFTR as a transparency tool is limited by poor data quality undermining surveillance, reducing supervisory effectiveness, and creating gaps in identifying systemic vulnerabilities.
Reviews
SFTR is being reworked and reviewed into SFTR 2.0, with the aim of refining the existing reporting regime for securities financing transactions by improving data quality, potentially establishing principle-based rules, and adding requirements around ESG and tax reporting.
Discussing the reworks, Lee envisages SFTR 2.0 will be borne out of the ESMA simplification and burden reduction agenda, highlighting it could take the form of a much more focused, risk-based piece of reporting where data flows through its golden sources (rather than via the reporting counterparty acting as intermediary), and any data classification and enrichment taking place centrally at the trade repository or ESMA/FCA rather than at each individual firm. He adds that a sharp new focus on the trade economics, equilibrium of loans and collateral, and the dynamics of lending fees and repo rates would see SFTR 2.0 meet the original FSB mandate and global regulatory need to monitor for macro-systemic risk much more keenly.
Santos adds that, over the next decade, SFTR 2.0 is likely to evolve from a largely static framework into an integrated, policy?expanded, and data?driven reporting regime, shaped by ESMA’s broader agenda to streamline EMIR, Markets in Financial Instruments Regulation (MiFIR), and SFTR reporting.
The price of transparency
The success of SFTR is a double edged sword.
“From a solutions perspective — supporting the market in achieving and maintaining compliance — it has been a great success. From the client side, it has been more of a burden both operationally and from a cost perspective,” according to Carpenter.
Lee shares this sentiment, describing SFTR as successful on balance, however he adds the caveat that it remains “hugely over complicated and expensive to comply with”.
The simultaneous positive and negative results are echoed by Santos, who states that the regulation can be considered a qualified success as it has delivered far greater transparency and improved supervisory insight into securities financing markets, however, persistent data quality issues mean it has not yet fully achieved the level of completeness and accuracy originally intended.
It seems as though SFTR 2.0 has quite a way to go before becoming truly successful — from making it more cost efficient from the client side to improving data quality, something that ESMA is trying to achieve.
SFTR has been included in the ESMA Call for Evidence consultation — a consultation conducted by the authority to gather feedback on simplifying reporting requirements, aiming to reduce administrative burdens and costs for firms by addressing inconsistencies, eliminating duplicative data requirements, and streamlining reporting workflows. The final report based upon industry responses is expected in the first quarter of 2026.
According to Hillery, the industry anticipates that the FCA will closely observe the findings of the call for evidence alongside His Majesty’s Treasury and the Bank of England to form a suitable solution for the UK market.
In that same year, the Securities Financing Transactions Regulation (SFTR) first entered into force on 12 January 2016.
From the shadows
The European Commission originally proposed the SFTR in 2014, with the aim of increasing transparency in the European securities financing markets by identifying and quantifying risks affiliated with shadow banking (now known as non-bank financial intermediation), following the 2008 financial crisis.
Jonathan Lee, senior money markets reporting director at Kaizen Reporting, explains that the crisis provoked global regulators to put a spotlight on both financial derivatives and securities financing markets. Reporting regimes including SFTR and the European Market Infrastructure Regulation (EMIR) were established to identify national, regional, and global macro systemic risks in these markets. The Financial Stability Board (FSB) published a paper entitled ‘Standards and Processes for Global Securities Financing Data Collection and Aggregation’ in November 2015, which was followed very shortly by the European Parliament and Council of Ministers publishing ‘Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012’ in December 2015.
SFTR intended to increase transparency in the market in three ways: imposing conditions on the reuse of collateral to ensure clients and counterparties fully understand the risks involved and give their consent to the reuse; mandatory reporting for all securities financing transactions (SFTs), excluding those concluded with central banks, to trade repositories; and requiring investment funds to disclose information on the use of SFTs and total return swaps to investors in their regular reports and in their pre-contractual documents.
You’ve changed
New regulations often equal changes in market behaviour.
REGIS-TR, a European trade repository (TR) that provides centralised reporting services for derivatives, securities financing transactions, and regulatory obligations under EMIR, UK EMIR, SFTR, and FinfraG, has several corporate treasurers as its members, according to Maria Santos, head of trade repositories at SIX. She elaborates that previously, it was the norm for them to have invested in a very small number of securities lending or repo transactions to achieve secured deposits of spare cash, however, SFTR introduced a disproportionate operational overhead for these types of entities, causing many of them to change their behaviour and move their cash into non-reportable instruments such as money market funds (MMFs).
Santos adds that, as with the implementation of any reporting regulation, the discipline of reporting to defined technical specifications drives the standardisation of operational processes such as trade capture, data enrichment, exception handling, and lifecycle management, which often leads to greater front?to?back alignment, improved data quality, and more consistent controls across the organisation.
According to Michele Hillery, managing director, head of Repository & Derivatives Services, at the Depository Trust & Clearing Corporation (DTCC), SFTR has impacted the market in three main ways.
Hillery elaborates that the structural shift towards transparency and internal discipline allowed firms to strengthen their front to back controls as it relates to the reportable products and events. As a result, firms now operate with greater awareness of regulatory obligations with the introduction of Entity Responsible for Reporting (ERR).
She highlights that the increased focus on collateral reuse and balance sheet enables firms to be more selective and controlled in collateral reuse chains in cross border relationships. This supports collateral optimisation and inventory management to be more data-driven as market participants factor in reportability and data quality into product design and booking models.
Hillery concludes that SFTR increased operational standardisation, but limited market simplification, highlighting there is more investment in reporting infrastructure, reconciliation tools, and third-party service providers, creating greater alignment around common data models, standard identifiers, and lifecycle interpretations. She adds the caveat that, despite the positives, the regime has exposed the inherent complexity of securities lending.
Providing a recent example of how SFTR has altered market behaviour, Duncan Carpenter, head of Securities Lending Post Trade at Pirum, notes the “significant” amount of discussion and planning required to ensure clients could continue to comply with SFTR as they began trading on Cboe Clear Europe’s new central counterparty (CCP), which is supported by Pirum’s ClearingConnect platform.
Geopolitics versus regulation
Geopolitical tensions can and often do have negative impacts on financial markets, in some cases causing market instability, high inflation rates, and investor uncertainty, and SFTR is no exception.
According to Santos, Brexit created the most significant shift for the regulatory framework by splitting the framework into two separate regimes — EU SFTR under the European Securities and Markets Authority (ESMA), and UK SFTR under the Financial Conduct Authority (FCA) — each with its own technical standards.
Since Brexit, updates from ESMA and the FCA have begun to diverge, increasing operational complexity for firms that must comply with dual reporting, differing validations, and asynchronous regulatory guidance, she adds.
“Despite the added operational burden for cross?border participants, there is no evidence from SFTR public data that this divergence has negatively affected repo or securities lending market liquidity,” Santos notes.
Carpenter concurs, noting that from an operational perspective, clients effectively have to maintain two different versions of the rule, which have diverged in their interpretation of the regulation. He does however add that the regulations have remained “fairly well aligned”, with cross-border double reporting problems having been largely resolved through Pirum’s joint reporting module with S&P Cappitech.
On the other end of the spectrum, Hillery says that SFTR UK remains “closely aligned” with SFTR EU, reflecting the UK’s onshoring of the regulation following Brexit. There are minor differences in rules, she adds, specifying that these differences are found in reporting frequency, most notably in the EU where TR reports are not generated on days designated as TARGET2 holidays.
However, she underscores that while the changes may not have disrupted liquidity at a systemic level, there are operational impacts for cross-border participants and firms must maintain dual reporting logic, even where underlying transactions are economically identical.
Reviewing the impact of Brexit on SFTR, a spokesperson from ESMA believes it added an additional layer of complexity to the reporting ecosystem for market participants in both the UK and EU.
Focusing on the role the authority played in the go-live of SFTR, the ESMA spokesperson noted that, because Brexit and SFTR were implemented in a close time window, extra efforts were required by ESMA and the industry to ensure the introduction of the reporting regime happened smoothly.
Delving into the issues caused by Brexit, the spokesperson states that while contingent data quality issues might have emerged, efforts both from regulators and reporting counterparties ensured that they were solved in a timely manner. Brexit also triggered several changes in the trade repositories market structure driving the decision of some pre-Brexit TRs to no longer offer their services in the EU.
“Volumes of SFTs reported to EU TRs decreased due to Brexit and UK counterparties no longer reporting to European Trade Repositories,” they add.
Persistent pain points
Introducing new reporting regulation has been no small feat, with Carpenter noting that reference data is always difficult to manage. The volume of data points combined with the strict matching tolerances that ESMA detailed in SFTR pose a number of challenges to all reporting firms, he adds.
“Although there has been great collaborative work across various industry groups to agree common interpretations and approaches to help minimise the potential for differences, there are still cases where reporting firms are approaching the same field differently, leading to differences in the values reported to the TR, particularly where firms aren’t using centralised processes to agree common values for elements such as price,” Carpenter concludes.
For Lee, the biggest challenge is data quality. SFTR has up to 155 fields, many of which still lack regulatory certainty, despite it being almost six years since the go-live. He elaborates: “Some aspects of the regulation — such as the treatment of optional fields — still have to be proactively and diligently sought out, hidden in the depths of the general information on the validation rules and easily missed.
“Certain fields are not nearly as well defined as necessary — security and collateral type, maturity of the security, and floating rate are prime examples. It is also not evident which lifecycle events should be reported on a mandatory basis nor the approach firms should take.”
To counter these challenges, Lee suggests that improving the accuracy, completeness, and timeliness of reported SFTR data is critical for regulators to be able to fully rely on the data to detect systemic risk.
Santos agrees that data quality poses challenges, drawing attention to ESMA’s annual report on data quality which identifies trade?level mismatches, outdated and missing valuations, and inconsistencies in position?level reporting as the most persistent and severe SFTR data quality issues. According to Santos, these deficiencies “materially impede” ESMA’s ability to monitor systemic risk, collateral flows, and counterparty exposures, particularly during periods of market stress. She adds that the usefulness of SFTR as a transparency tool is limited by poor data quality undermining surveillance, reducing supervisory effectiveness, and creating gaps in identifying systemic vulnerabilities.
Reviews
SFTR is being reworked and reviewed into SFTR 2.0, with the aim of refining the existing reporting regime for securities financing transactions by improving data quality, potentially establishing principle-based rules, and adding requirements around ESG and tax reporting.
Discussing the reworks, Lee envisages SFTR 2.0 will be borne out of the ESMA simplification and burden reduction agenda, highlighting it could take the form of a much more focused, risk-based piece of reporting where data flows through its golden sources (rather than via the reporting counterparty acting as intermediary), and any data classification and enrichment taking place centrally at the trade repository or ESMA/FCA rather than at each individual firm. He adds that a sharp new focus on the trade economics, equilibrium of loans and collateral, and the dynamics of lending fees and repo rates would see SFTR 2.0 meet the original FSB mandate and global regulatory need to monitor for macro-systemic risk much more keenly.
Santos adds that, over the next decade, SFTR 2.0 is likely to evolve from a largely static framework into an integrated, policy?expanded, and data?driven reporting regime, shaped by ESMA’s broader agenda to streamline EMIR, Markets in Financial Instruments Regulation (MiFIR), and SFTR reporting.
The price of transparency
The success of SFTR is a double edged sword.
“From a solutions perspective — supporting the market in achieving and maintaining compliance — it has been a great success. From the client side, it has been more of a burden both operationally and from a cost perspective,” according to Carpenter.
Lee shares this sentiment, describing SFTR as successful on balance, however he adds the caveat that it remains “hugely over complicated and expensive to comply with”.
The simultaneous positive and negative results are echoed by Santos, who states that the regulation can be considered a qualified success as it has delivered far greater transparency and improved supervisory insight into securities financing markets, however, persistent data quality issues mean it has not yet fully achieved the level of completeness and accuracy originally intended.
It seems as though SFTR 2.0 has quite a way to go before becoming truly successful — from making it more cost efficient from the client side to improving data quality, something that ESMA is trying to achieve.
SFTR has been included in the ESMA Call for Evidence consultation — a consultation conducted by the authority to gather feedback on simplifying reporting requirements, aiming to reduce administrative burdens and costs for firms by addressing inconsistencies, eliminating duplicative data requirements, and streamlining reporting workflows. The final report based upon industry responses is expected in the first quarter of 2026.
According to Hillery, the industry anticipates that the FCA will closely observe the findings of the call for evidence alongside His Majesty’s Treasury and the Bank of England to form a suitable solution for the UK market.
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