In the light of the exceptional circumstances of the Covid-19 pandemic, on March 19 the European Securities and Markets Authority issued a public statement regarding application of Regulation (EU) 2015/2365 on transparency of securities financing transactions (SFTR) and clarified it on March 26.
Taking into account the current difficulties for the financial industry in complying with the SFTR due to the impacts of the coronavirus, ESMA has invited national regulators not to prioritise enforcement of the reporting obligation under the SFTR regarding securities financing transactions concluded between April 13 and July 13, 2020, initially scheduled to begin on April 13.
Instead, in general ESMA recommends that regulators should apply a risk-based approach in exercising their supervisory powers in a proportionate manner.
ESMA also considers that it is not necessary to register any trade repository before April 13 and instead expects that repositories will be registered ahead of the next reporting deadline on July 13.
On April 9, Luxembourg's Financial Sector Supervisory Authority published a circular regarding CSSF Circular 20/739, also dated April 9, on application of the ESMA guidelines on reporting under articles 4 and 12 of the SFTR, noting that it has integrated the guidelines into its administrative practice and regulatory approach, in furtherance of the goal to promote supervisory convergence throughout the EU.
The circular applies to all entities subject to supervision by the CSSF as well as to non-financial counterparties as defined by Article 3(4) of the SFTR that enter into a securities financing transaction as defined by Article 3(11) of the regulation.
The SFTR provides for a phased-in introduction of the reporting obligation, depending on the nature of the entities concerned. Since certain of the starting dates fall on a non-working day in Luxembourg, reporting will effectively begin on the following dates:
- Tuesday, April 14, 2020 for entities referred to under Article 33(2)(a)(i) of the SFTR;
- Monday, July 13, 2020 for entities referred to under Article 33(2)(a)(ii);
- Monday, October 12, 2020 for entities referred to under Article 33(2)(a)(iii); and
- Monday, January 11, 2021 for entities referred to under Article 33(2)(a)(iv).
Under Article 4(1), the counterparties should comply with the reporting obligation no later than the working day following the conclusion, modification or termination of the transaction.
However, the circular notes that implementation of securities financing transaction reporting is greatly affected by the Covid-19 pandemic, and entities in question may face serious difficulties in finalising implementation of the reporting requirements and completing the necessary technical preparations before April 14.
The CSSF has therefore decided that it will not prioritise supervisory action regarding counterparties, entities responsible for reporting and investment firms over their reporting obligations under the SFTR or MiFIR, regarding transactions concluded between April 13 and July 13, 2020, and transactions subject to backloading under the SFTR.
The CSSF will monitor the progress of implementation by market participants and expects them to be sufficiently prepared ahead of the next deadline of the reporting regime, July 13, in order to start reporting as of this date.
The ESMA statement of March 26 can be viewed at https://www.esma.europa.eu/sites/default/files/library/esma80-191-995_public_statement.pdf.
CSSF Circular 20/739 is available at http://www.cssf.lu/fileadmin/files/Lois_reglements/Circulaires/Hors_blanchiment_terrorisme/cssf20_739eng.pdf.
For further information, please contact:
Chevalier & Sciales
Office: + 352 26 25 90 30
Fax: +352 26 25 83 88
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.