The cost burden of SFTR was a major talking point at the 27th annual Securities Finance and Collateral Management Conference.
Ensuring securities lending regulation does not lead to higher costs for investors was a hot topic at the International Securities Lending Association’s (ISLA) 27th Annual Securities Finance and Collateral Management Conference held in Lisbon this year. According to speakers at the event, the securities lending industry views the Securities Financing Transaction Regulation (SFTR), which is expected to come into force in the third quarter of 2018, as a major cost burden and a hindrance to business growth.
The overarching aim of SFTR, however, is to improve the transparency and monitoring of SFTs and, in turn, promote confidence in the market. In many ways, the regulation is simply an extension of the transparency measures already introduced in the FX, commodities, and ETF sectors. SFTR is similar to the European Market Infrastructure Regulation (EMIR) in its drive for transparent reporting, but it requires firms to report on more than 150 data fields – EMIR requires approximately 80. Higher costs may ensue, but the sooner firms embrace the changes, the sooner they will recognize SFTR as a business builder that brings transparency to a formerly opaque industry.
Speakers at the event suggested an unintended consequence of higher reporting costs could be pricing retail investors out of the market. This would be counterproductive to ESMA’s goals to protect and offer transparency to retail lenders. At a time when fund fees are getting tighter, and more managers are looking to securities lending as a tool to offset costs, the industry hopes ESMA will hear their concerns. All market participants would welcome a more aligned approach to reporting.
Read more about SFTR here.