Following the global financial crisis, the ESRB and the European Commission have explored various ways to regulate the so-called « Shadow Banking » sector.
The EU Securities Financing Transactions Regulations (SFTR) came into effect on 12 January 2016 and aims at regulating and increasing the transparency of securities financing transactions in three ways
- By requiring counterparties to report SFTs to a EU approved trade repository
- By imposing condictions on the Collateral re-use. The collateral provider has to give explicit writing consent about risks & consequences of such agreement.
- By requiring Funds managers to inform investors of their use of SFTs and total return swap in their reports (pre-investment documentation, periodical reports)
Reuse requirements and reports transparency obligations respectively came into effect on 13 July 2016 and 13 January 2017.
- The reporting obligation follows a phased-in approach after the RTS comes into force. Consequently, the reporting obligation should start in Q2 2019 assuming RTS will entry into force in Q2 2018…