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SFTR – A Briefing on the Impact for Funds

2016年 1月 14日

The Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse ("SFTR", the "Regulation") came into force on 12 January 2016, with some aspects coming into effect later. If any of your funds use repos, reverse repos, engage in securities lending, margin lending or use total return swaps, this will impact your business. A link to the Regulation is available here.

Key elements of the Regulation:

Overview: SFTR aims to enhance transparency in relation to the use of securities financing transactions ("SFTs") by introducing a range of transparency obligations that must be met by institutions engaging in SFTs.

Transactions in scope: SFTs (securities lending, repurchase agreements, reverse repurchase agreements and certain margin lending transactions) and total return swaps ("TRS"). The collateral reuse requirements under SFTR apply to the reuse of financial instruments provided as collateral under all security and title transfer collateral arrangements.

Entities in scope: Any EU financial or non-financial institution including both authorised UCITS and authorised AIFs.

Please see below for a summary of the Regulation's transparency obligations and when they commence.

Obligation

Details

Timing

Possible actions to consider

Pre-contractual disclosure to investors

For a UCITS or AIF using SFTs or TRS, the prospectus must disclose clearly the intention to use these techniques and set out details of risks they entail – the Regulation is detailed and prescriptive in relation to the information to be disclosed. Please contact us for details and note we are working on generic prospectus disclosures for inclusion in new documents.

Applies immediately (from 12 January 2016) for new funds*

 

Transition date for existing funds: 13 July 2017

Consider preparing for any new funds planned.

 

Assess implications of the disclosure and gather information in due course for inclusion in new fund documents / document updates in 2017.

Periodic reports disclosure

Details on use of SFTs and TRS to be included in the semi-annual and annual reports of a UCITS and the annual report of an AIF.

Applies from 13 January 2017 (2016 annual accounts will be in scope)

Understand reporting details. Liaise with finance team to ensure 2016 data is captured for inclusion in annual reports.

Information on reuse

Strict information rules for counterparties are set out regarding reuse of collateral.

Applies from 13 July 2016

Prepare for information exchanges with counterparties. Updated trading documentation may capture.

Central reporting

Centralised reporting to be made to trade repositories (similar to EMIR framework in relation to derivatives).

Implementing regulations to follow (anticipate regime to be in place around Q4 2018)

No action.

Record keeping

Requirement to retain records on transactions for at least five years from their conclusion/termination.

Applies immediately

Ensure existing recordkeeping procedures are adequate or arrange enhancements.

Whistleblowing

Requirement to put in place appropriate internal procedures to facilitate reporting of infringements of the Regulation by employees.

Applies immediately (however Central Bank yet to indicate mechanisms)

Procedures to be put in place.


*It is still unclear whether this applies only to new fund ranges or captures new sub-funds of existing umbrella funds also. We consider it should only apply to new fund ranges but we are waiting for Central Bank/ESMA clarification on this point. It is also unclear whether the relevant date may be the date it is registered/incorporated or the date of authorisation by the Central Bank. 

If you would like further information on SFTR or would like to discuss the potential implications for your business and the recommended measures to ensure compliance with the SFTR, please contact your usual Maples and Calder contact.


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