On April 13, five industry associations* jointly published an information statement (Information Statement) in relation to the EU Securities Financing Transactions Regulation (SFTR).
As noted in our Corporate & Financial Weekly Digest edition of August 14, 2015, the SFTR is designed to enhance transparency of securities financing transactions and reuse (or “shadow banking”). The SFTR went into effect on January 12, and implements various disclosure, consent and reporting requirements to this end. In particular, Article 15 of the SFTR sets out disclosure and consent conditions for reuse, which firms will need to comply with after July 13, 2016.
Article 15 provides that in order for a right of reuse to apply, parties must:
(1) inform the providing counterparty in writing of the risks and consequences of a) granting consent to a right of use of collateral under a security collateral arrangement, or b) concluding a title transfer collateral arrangement; and
(2) obtain the providing counterparty’s prior express written consent to the right of use or provision of collateral by way of a title transfer collateral arrangement.
Article 15 further provides that in order to exercise a right for reuse, parties must ensure:
(1) reuse is undertaken in accordance with the terms specified in the collateral arrangement; and
(2) the financial instruments received under a collateral arrangement are transferred from the account of the providing counterparty.
The Information Statement published aims to assist firms to comply with Article 15, ahead of the July 13, 2016 compliance date. The obligation requires compliance not only for new collateral arrangements but also for those existing prior to July 13, 2016. In March 2016, the European Securities and Markets Authority (ESMA) also issued a discussion paper (Discussion Paper) for consultation in relation to the SFTR, which included proposed rules in relation to reporting. The consultation closed on April 22, with ESMA to consider feedback received in Q2 2016.
*The Information Statement was published jointly by International Swaps and Derivatives Association, Inc., the Association for Financial Markets in Europe, the Futures Industry Association, the International Capital Market Association and the International Securities Lending Association.
The SFTR is available here.
A copy of ESMA’s Discussion Paper is available here.
A copy of the joint Press Release accompanying the Information Statement is available here.