One month since the new Securities Financing Transaction Regulation (SFTR) reporting regime was published in the European Union’s Official Journal, firms are at serious risk if they intend to rely on their sell-side counterparts to meet the new standards.

It remains unclear whether 'sell-side' firms (involved in the creation/sale of financial instruments) will even be willing to take on this new reporting burden for its clients – but even if it does, an obligation to oversee things will remain.

The new regulation will oblige smaller buy-side firms (which help HNW clients invest in financial instruments) that participate in securities financing transactions (SFTs) to do some extra heavy lifting. What is more, the need to update reporting systems is likely to prove costly and might push some out of the SFT market altogether.

Damon Batten, a managing consultant at Bovill, told Compliance Matters: “Early signs from the market are giving us some amber warning lights. We’ve seen already that the sell-side don’t always get reporting right for their buy-side clients under the existing EMIR regime. The onus for meeting the SFTR standards will therefore most likely fall on buy-side firms, who should begin work now to make sure that reporting is in place and functioning – whether that means taking on the responsibility themselves, or keeping tabs on the reporting being done on their behalf.”

The SFTR's aim is to allow European counterparties to know more about SFTs, not least when they are operating in the repo market, lending securities and taking part in commodities-based lending. With regulatory technical standards published in the EU’s Official Journal in April, the 12-month countdown has begun for firms to prepare to the fullest extent.

The new regulation requires counterparties to SFTs – which include repurchase agreements, securities lending and sell/buy-back transactions – to report 153 data fields within a day of trading. Many of the required data fields are also novel to European financial regulation, making the process of data reconciliation between either side of a trade more complex than ever.