The industry breathed a sigh of relief when it became apparent that SFTR transaction reporting will most likely commence in Q4 instead of Q1 of 2018. The relaxation was short-lived though, as the European Commission then fired the starting pistol on the EMIR Article 9 RTS rewrite with a compliance date of November 1st 2017. The elephant in the room for both of these reporting regimes is the January 3rd 2018 MiFID II date and their potential proximity to it.
The SFTR relief came courtesy of ISLA (the International Securities Lenders Association) who published an opinion on the timelines associated with the implementation of article 4 of SFTR with an estimated compliance target date of Q4 2018, based on the remaining steps within the EU legislative procedures. The trade association for securities lending industry participants cautioned that these estimates are based on “a smooth-sailing scenario” and could move, based on issues in the adoption process. Bearing in mind that the EMIR RTS rewrite date has edged so precariously close to the MiFID II date because of delays within the adoption process for that RTS, it would seem prudent to consider the possibility of choppier seas ahead.
The original Q1 2018 timeline for SFTR has seemed in doubt ever since the one-year delay was granted for MiFIR/MiFID II. The extra year to deliver MiFID II was granted so that firms would have more time to update their systems. To do so and then compound it by having something as large as SFTR transaction reporting coming only a few months later would therefore seem highly counter-productive. Though if the EMIR RTS rewrite had followed the original anticipated timelines through the corridors of Paris and Brussels, we would have been looking at a Q2 2017 compliance date, rather than only 2 months before MiFID II.
The EU Commission publication of the revised EMIR RTS & ITS in the official journal of the European Union on January 21st has finally provided a compliance date for all the firms reporting under EMIR to work towards. Wednesday the 1st of November at least avoids one much-feared suggestion that suggested that the revised EMIR reporting would go live in the same month or even the same day as MiFIR transaction reporting. A bullet has been clearly dodged here, but for banks, asset management firms, and many other firms with obligations to report under both regimes, the challenge of scheduling development, testing and implementation of reporting solutions and control frameworks for two very different projects that have a significant overlap will be very daunting.
Many of the banks with obligations to report under both EMIR and MiFIR will also have obligations to implement the HKMA Phase 2 reporting changes this summer. The Hong Kong Monetary Authority is introducing reporting of three new asset classes (Credit, Commodities & Equities) as well as additional sub-product types for the FX and Interest Rate asset classes already reported. This is due to commence on June 16th and, given the HKMA’s well-known lack of tolerance for reporting errors, is a considerable undertaking in its own right. There is also the SEC’s Securities Based Swap Reporting (SBSR) which is the US Securities regulators outstanding section of Dodd-Frank reporting. After many delays, the exact timeline for SBSR is still unclear but is presumably sometime in 2017.
For banks with a global footprint there are also derivatives reporting requirements in Switzerland, Israel and South Korea to deliver this year. So, whilst the sheer breadth and scale of MiFID II will undoubtedly continue to hog the limelight, there is a considerable challenge to meet some or all of these reporting requirements, whilst also initiating SFTR projects.
More clarity should arise when ESMA publishes the final version of the Validations document for the new EMIR RTS, which should be soon. Likewise, when the final version of the SFTR RTS is published. In the meantime, it is clear that 2017 is going to be a very demanding year for regulatory transaction reporting and the last three months in particular are looking very busy.
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