ESMA has rejected proposed amendments by the European Commission (EC) to the regulatory technical standards (RTS) of the coming SFTR regulation. If no further amendments are proposed by the EC, and the current RTS is approved, it should lead to a firm date of when SFTR will go into effect late 2019 or early 2020.
Since the legal framework was written by the EC, financial firms that trade Securities Finance Transactions (SFTs) have been waiting for the final approval of the SFTR RTS to understand what will be under scope and the reporting requirements. Once the RTS is approved, the regulation is set to go into effect a year later.
Limiting delays and paralleling EMIR
Explaining their rationale behind rejecting the EC’s proposed amendments, ESMA cited four main reasons. They include:
Adaptability to global standards – ESMA believed that the EC’s amendments would make it harder for SFTR to adapt to new global standards in the future
Align the regulation with EMIR – The reporting standards of SFTR are often compared to EMIR as they both contain a double sided UTI structure and collateral report requirements. With that regulation well understood by the financial market, ESMA didn’t want to add amendments to the SFTR RTS that would make it inconsistent with standards used by EMIR.
Reducing clarity – ESMA stated that the proposed amendments “will not provide certainty, clarity, predictability and consistency, which is essential for the market and public authorities in relation to reporting standards”
More delays – Overall, ESMA concluded that adding the amendments would make it more difficult for financial firms to comply with the regulation and ultimately lead to greater delays for it to be implemented.