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FCA update – SFTR reporting, Brexit and transition period

FCA update – SFTR reporting, Brexit and transition period

Background

  • The FCA issued an update for these topics on 1 October 2020.
  • The Securities Financing Transaction Regulation (SFTR) came into force within all countries of the European Union in January 2016.
  • SFTR introduces many requirements to improve transparency and monitor the risks associated with the securities financing transactions market.
  • SFTs include: a repurchase transaction; securities or commodities lending and securities or commodities borrowing; a buy-sell back transaction or sell-buy back transaction; and a margin lending transaction.
  • So far in 2020, SFTR reporting has become applicable for investment firms and credit institutions (from 11 April) and for central counterparties (CCPs) and central security depositaries (CSDs) (from 13 July).
  • From 12 October 2020, reporting is also required from insurance and reinsurance firms, UCITS and pension schemes among others. All firms in this category must already be preparing to start their reporting on time.
  • Although SFTR also will require reporting from non-financial counterparties (NFCs), that is scheduled from 12 January 2021. However, on 31 December 2020, the UK will end its transition period with the European Union.  For this reason, SFTR reporting will NOT be extended in the UK to non-financial counterparties.

Impacts

SFTR directly applies in the UK during the transition period.  The FCA refers to this regime as “EU SFTR”.  At the end of the transition period, this SFTR will convert into UK law (be onshored) under the European Union (Withdrawal) Act 2018 (EUWA).  The regime after the end of the transition period is referred to on the FCA webpages as “UK SFTR”.

On 23 June 2020, a Written Ministerial Statement was presented to Parliament, further confirming the UK approach to onshoring the SFTR.  The statement confirmed that the UK will not implement the SFTR reporting obligation for non-financial counterparties (NFCs).

As a result, the FCA will NOT require NFCs established in the UK to put in place arrangements to meet the reporting obligation under the onshored UK SFTR regime.

This approach is subject to any further statements that HM Treasury or the FCA may issue.

Timeline with relevant dates to be logged on regulatory calendar

  • The next (third) phase of SFTR reporting starts from 12 October 2020

Next steps

All firms need to be complying fully where required with the current SFTR rules and reporting until 31 December 2020.

From 1 January 2021, the SFTR will be “onshored” into UK law and new requirements will apply.  Firms need to monitor carefully all relevant statements from the FCA.