Before the financial services industry has had a chance to iron out all the wrinkles in its response to MiFID II, another regulation is coming along. This time, compliance officers' eyes are gazing upon the traditionally under-reported world of repos, securities lending and the re-use of collateral.

We wait ages for a major regulation to come along but as soon as it arrives another new rule follows hard on its heels. Before the financial services industry has had a chance to iron out all the wrinkles in its response to MiFID II, another regulation is coming along. This time, compliance officers' eyes are gazing upon the traditionally under-reported world of repos, securities lending and the re-use of collateral.

Coming partially into force in April, the European Union's Securities Financing Transactions Regulation [the SFTR, enacted before Christmas and therefore applicable to the United Kingdom, which left the European Union at 11pm GMT - when it was midnight in Brussels - on 31 January] might prove to be the most complex rule that the financial services industry has faced since the credit crunch of 2008. From margin-lending transactions on a daily basis to numerous collateral updates and valuations, exchange-facing firms face a monumental task when it comes to reporting. As a case in point, prime brokers will have to report specific information regarding their margin lending to hedge funds, including intricate details such as what percentage of assets in their portfolio is being used as collateral. The trouble is that, unlike the more straightforward collateral classification rules under Mifid II, SFTR forces a much more in-depth assessment of the quality of collateral.

When it comes to classifying the quality of requisite collateral, firms have to take information supplied by credit rating agencies such as Moody’s and Standard & Poor's. The problem is that every firm needs an official data licence - incredibly expensive to obtain - to do this. This is why the European Securities and Markets Authority is busily looking for alternatives to sole reliance on ratings supplied to the market. However, with six months to go before the first stage of the SFTR begins, can the market really afford to wait for further regulatory guidance before working out how it plans to get its collateral reporting in order?

The answer, in view of the sheer volume of different fields (between 145 and 150, including counterparty, loan, collateral and margin data) is clearly no.

Some data fields are, of course, more complicated than others. One or two reference data fields are difficult. The job of obtaining a Legal Entity Identifier (LEI) is a case in point. What happens if the UK does not strike a deal with the EU by the end of the year and someone in London issues securities that serve as a collateral buffer but he has no obligation to provide an LEI? If the issuer is based outside the UK, on the other hand, the LEI could go missing as nobody would be obliged to provide it. In such cases people have to sift through a huge amount of complex data just to work out who owns the information.

The only place for firms to start is to try to make sense of the plethora of different data fields. It is not just a case of understanding the data itself, but also of working out where the data is coming from. Is it coming directly from trading venues or through bi-lateral agreements? Also, how exactly is the information going to be reported and how does a trading firm make sure it gets the correct counterparty details?

For too long now, the industry has been crying out for a way to fix the longstanding reporting shortcoming in the securities market. It may have taken time to emerge, but the SFTR is the crucial missing piece in this complex regulatory jigsaw that market participants have been piecing together over the past decade. The good news for firms is that, thanks to MiFID II and the European Market Infrastructure Regulation or EMIR, much of the reporting groundwork is already in place for SFTR. In view of the great importance of the quality of data, the starting point has to be their ability to identify, access and work with the real data that they will need. Firms that can find a way to know and measure what has been reported first will be best placed to tackle other regulatory problems. After all, with major changes occurring to the structure of repo trading, not to mention some significant collateral management issues to consider, reporting is by no means the only thing that the market has to learn about when it comes to the SFTR.