Securities Financing Transactions Regulation (SFTR)
SFTR responds to the need to enhance the transparency of securities financing markets and thus of the financial system.
SFTR is a European regulation, which means that it has direct effect in the Member States of the EU. The new transparency rules regulate the reporting of details concerning securities financing transactions (SFTs) concluded by all market parties, both financial and non-financial institutions. This includes information on the composition of the collateral, on whether the collateral is available for reuse or has been reused, on the substitution of collateral at the end of the day and on the ‘haircuts’ applied.
In addition to the transparency rules relating to SFTs, SFTR also introduces new rules on the transparency that collective investment undertakings must provide to their investors in periodic reports and pre-contractual documents, such as a prospectus.
The AFM supervises compliance with SFTR together with the Dutch Central Bank (De Nederlandsche Bank, DNB). The division of supervisory responsibilities has been laid down in Section 2w of the EU Financial Markets Regulations (Implementation) Decree (Besluit Uitvoering EU-verordeningen financiële markten). The sections on the reporting requirements, among other things, have been assigned to the AFM. DNB is the competent supervisor with regard to the other sections insofar as the counterparty is a bank, insurance company, reinsurance company or pension fund. The AFM is the competent supervisor for other counterparties.
Reporting to Trade Repositories
The requirement to report to Trade Repositories has been in force since 11 July 2020. Under SFTR, any party concluding an SFT must report the details of this transaction to a Trade Repository. This is an entity that centrally collects and maintains the reports of SFTs in a transaction register. These Trade Repositories give legislators and supervisory bodies greater insight into the securities financing market. In this way, SFTR aims to enhance the transparency of this market.
Supervision of compliance with the reporting requirements is entirely the responsibility of the AFM. Separately from the above division of duties, DNB can access the reports received by the AFM insofar as this is necessary for the performance of DNB’s duties. Similarly, DNB can hold consultations independently with a financial undertaking supervised by DNB about reporting-related questions.
If you conclude SFTs, you must:
• decide whether you will submit reports yourself or outsource this;
• choose a Trade Repository for the reports that you will submit yourself;
• possess a valid Legal Entity Identifier (LEI) or apply for one, and renew this annually.
What is expected of you?
The reporting obligation applies to all SFTs and to each user of such contracts. This means that if you are a party to an SFT, you must report this contract to a Trade Repository. The Regulation identifies four types of SFT:
• (reverse) repurchase transaction
• securities/commodities lending and borrowing
• buy-sell back or sell-buy back transaction
• margin lending transaction
Forms of securities financing to private individuals that fall under the Consumer Credit Directive, such as securities-backed loans to private individuals, do not fall under the definition of an SFT and should therefore not be reported.
Both parties to an SFT separately report the details of this transaction and every change therein or termination thereof, each to a Trade Repository of their choice. The details must be reported by the working day following the execution, modification or termination of the transaction.
Trade repositories
In total, there are currently three registered Trade Repositories in the EU:
• DTCC Data Repository (Ireland) Plc (DDRIE), based in Ireland
• REGIS-TR S.A., based in Luxembourg
• Krajowy Depozyt Papierów Wartościowych S.A. (KDPW), based in Poland
Submitting reports yourself or outsourcing?
As a counterparty, you can choose either to submit reports yourself or to outsource this. The options available in this context include:
• Reporting directly to the Trade Repository yourself;
• Delegating the reporting to the other party or a third party. Please note that such delegation will not release you, as a counterparty, from responsibility for the reports;
• With regard to transactions involving a financial and a non-financial counterparty, the financial counterparty will in some cases be responsible for the reporting obligation of both parties. This relates only to smaller non-financial counterparties.
Data quality
The data quality of the SFTR reports is one of the points to be considered by the supervisor. Data quality has three aspects: completeness, accuracy and timeliness - are all transactions reported, have the right values been entered and did this happen in time?
The AFM uses tests and metrics to measure the data quality. Thus, transactions that have been rejected by the Trade Repository must be resubmitted in a timely manner and meet the validation rules. Dual-sided transactions must be reported by the two counterparties under the same UTI. Where the aspect of timeliness is concerned, the AFM measures the number of transactions reported late and the extent to which they are overdue.
Notification of incidents - Transaction Reporting incident form
What is the EMIR/SFTR notification form?
The EMIR/SFTR notification form is a PDF file that you can easily fill out and submit. The form is designed for institutions that are required to report to the supervisor under EMIR/SFTR regulations. By using the form, you can report any errors or incompleteness in your reports. This ensures that the supervisor receives accurate information in a timely manner.Why is reporting required and how do you report errors or incompleteness?
The supervisor requires information about the financial markets to monitor and regulate them. If you are subject to EMIR/SFTR regulations, you are obligated to report specific information to the supervisor. If your reports contain errors or incompleteness, it can impede the supervisor's work and pose a risk to the financial stability of the markets. Therefore, it is important that your reports are as accurate as possible, and any errors or incompleteness should be reported promptly.How can you submit the notification form?
You can download and fill out the EMIR/SFTR notification form. Then, you can send the form via email to the appropriate address. For incidents related to SFTR, you should send the form to sftr@afm.nl Misconduct notification centre (whistleblowers)
Pursuant to Article 24(3) SFTR, counterparties must have appropriate internal procedures in place for their employees to report infringements of Articles 4 (obligation to report SFTs) and Article 15 (obligation to report collateral reuse).
The AFM offers a second-line notification centre for reporting potential infringements of the SFTR. Please email your notification to sftr@afm.nl. If desired, you can use Cryptshare. The manual explains how you can easily share files via Cryptshare.
The AFM will handle your notification confidentially. Our privacy statement sets out how we deal with personal data. All persons involved in the notification or the investigation of an infringement are obliged to observe secrecy in respect of confidential details, such as details identifying the notifier and the person alleged to have infringed Union law, or information about a business secret.
In the event that any statutory regulation requires the disclosure of a notifier’s identity in the context of an investigation by a competent authority, or of legal proceedings, the notifier will be informed of this in writing beforehand, unless the information might jeopardise the relevant investigation or legal proceedings.