Fraser Reid, Senior Solutions Architect, AxiomSL,

A plan endorsed by G20 member states to boost transparency and facilitate global financial stability more than 10 years ago has led to more stringent reporting requirements across global trade and transaction regimes. As counterparties scramble to keep up, the recent addition of SFTR reporting (Securities Financing Transactions Regulation) is another challenge in an already onerous scenario. In fact, the complex requirements of this regime may be the last straw for overburdened compliance teams.

On a daily basis, reporting organizations are contending with issues regarding data quality, tight timelines, and siloed processes as they report to trade repositories (TRs). In addition, effects of the COVID-19 pandemic mean that stretched resources and increased regulatory scrutiny have been added to the load they are already carrying.

Lugging A Heavy Load Across The Desert – All In A Typical Day’s Work

Many reporting organizations’ compliance teams are continuously managing the high volume of required reportable transactions across global trade and transaction regimes — but with no end in sight. For them, the pressure is great to stay on top of daily transactions so as to be in full compliance within tight timelines and across regimes.

A typical day for a compliance officer at a reporting organization may begin with the processing of the first batch of trades, including delegated ones. This first batch may often include a number of errors to be addressed. These errors, including pairing/matching, must be dealt with promptly because new batches of trades tend to follow in rapid succession with the number of trades to be reconciled increasing throughout the day. If by midday, the compliance teams have caught up with batch processing and error reconciliation, they are on track to meet TR requirements. However, this may or may not be the case, as many attempt to manually rectify errors from the previous day while continuing business as usual with a new set of trades for the current day.

Organizations’ systems are often opaque and lack traceable data drilldown, making the error rectification process very cumbersome. At the end of the trading day, potentially hundreds or thousands of problems with trade reconciliations may need be rectified before being sent for overnight batch processing. Compliance teams log off hoping that their reconciliations will be error free, but given that data quality can be problematic, this is unfortunately not always the case.

As the following workday begins, compliance teams first may need to deal with any problems that were flagged by TRs on the overnight submissions. And then, their typical trading day starts again, with some feeling they may be sinking into quicksand.

Mounting Pressures

A plan to increase transparency and facilitate financial stability should certainly have a positive effect on standardizing reporting. So how did trade and transaction reporting get so complicated for organizations?

The list of financial reporting regimes implemented over the past 10 years includes MiFID, Dodd Frank, EMIR, MAS, ASIC, and FinfraG. With the addition of each new regime, counterparties have had to contend with:

• Expanding requirements
• Addressing data quality issues
• Determining reporting eligibility
• Resolving data quality exceptions

SFTR: The Last Straw?

The European Commission’s European Securities and Markets Authority (ESMA) introduced SFTR to give regulatory authorities a comprehensive overview of the market for securities financing transactions. The objective was to identify and monitor financial stability risks that may arise from shadow banking activities. The requirements affect a broad range of trades and reporting organizations.

The trades in scope for SFTR include repurchase transactions, securities and commodities lending and borrowing transactions, buy/sell-back and sell/buy-back transactions, and margin lending trades. Aside from the trades in scope, the eligible reporting organizations under SFTR that differ from previous regimes are financial counterparties (FCs), non-financial counterparties (NFCs), European Union (EU) counterparties, branches of EU entities that are domiciled outside the EU, and branches of non-EU entities located in the EU.

To date, SFTR is the regime with the most complex set of requirements. It consists of 150 attributes, has a tight T+1 reporting deadline, entails complicated reporting related to collateral reuse and, most importantly, requires the collection of more data by all affected counterparties — including across institutional data silos, or from outside, third-party sources. Furthermore, as the total volume of reportable trade and eligible transactions increases, the margin for error permitted by TRs and regulators decreases.

Can A Camel’s Back Hold Up Under This Weight?

Given the complexities of SFTR, reporting organizations need an optimized, seamless process. Current systems in place to handle MiFID and EMIR may not have the capacity to handle yet another regime, and the additional data required for SFTR may not be readily accessible. While organizations may seek to leverage their MiFID and EMIR systems, this may not be ideal for SFTR. Thus, many reporting organizations are now are asking themselves how best to proceed:

• Is our infrastructure equipped to accommodate yet another trade and transaction regulation regime?
• Can our data collection, validation, enrichment, and submission process scale to accommodate SFTR?
• Can we take a different approach going forward?

Indeed, reporting organizations may need to reconsider best practices for their daily processes and reporting to TRs. SFTR was set to go live in April 2020, however, due to the global COVID-19 crisis, ESMA has postponed the initial reporting date to July 2020. And while the reprieve does not eliminate the need to address the issues at hand, it presents an opportunity for organizations to examine their systems and consider best practices before reporting goes live.

Stop In At An Oasis … For A Fresh Approach

The implementation of the new SFTR regime requires organizations to further review their data management capabilities, be prepared to comply with requirements and avoid any potential sanctions. Clearly, taking on SFTR adds more weight to the compliance teams’ daily burdens. Many reporting organizations may not have adequate processes in place to handle expanded and diverse reporting requirements, especially given the large data volume needed and often opaque, siloed, manual processes. Such challenges will strain capacities and increase risk of compliance breaches. This could be the perfect opportunity to stop at the next oasis to get a fresh perspective before continuing on the trade and transaction reporting journey!

AxiomSL’s Regime Agnostic Trade and Transaction Solution: A Strategy For Unburdening The Camel

AxiomSL offers financial institutions a fresh perspective for SFTR and all other trade and transaction reporting. AxiomSL delivers a regime-agnostic, non-invasive Trade and Transaction (T-and-T) solution, with powerful eligibility and exception management capabilities. Running on AxiomSL’s data integrity and control platform, ControllerView^®, and leveraging its extensible SecurityView data dictionary, the T-and-T solution enables reporting organizations to eliminate piecemeal, ad hoc processes and establish a single platform solution for evolving global requirements. AxiomSL’s T-and-T solution is unique in the marketplace in offering a truly scalable approach to trade and transaction reporting. It provides organizations with a holistic approach for accurate and timely reporting, where they can manage all regulatory data collection, validation, enrichment, and submission to relevant TRs and regulatory bodies in one place.

Start With SFTR

The SFTR solution provides reporting organizations with a seamless process to comply with reporting requirements. Because the solution easily integrates with other systems in the SFT universe, organizations benefit from a non-invasive approach to managing SFT data. Running on AxiomSL’s data integrity and control platform, ControllerView, the SFTR solution enables them to manage all data collection, validation, enrichment, and submission requirements in one place.

Reporting organizations benefit from the platform’s strong data-management capabilities for SFT data that enable reconciliation of unpaired and unmatched trades and other related activities. In addition, the solution’s user-friendly dashboards provide transparency for end-to-end workflow management, eligibility assessment, and TR reconciliation. These powerful dashboards enable users to facilitate submissions, including delegated submissions, with automated connections and transmissions.

Highlights of the solution’s capabilities include the following:

Eligibility Insight

The SFTR solution handles end-to-end transaction reporting automatically, and with full traceability and auditability. By leveraging its powerful dashboard and eligibility views, operations teams can focus on value-added issue resolution. The user can easily filter by regime, asset class, entity, date, status, as well as other criteria.

Exception Management

SFTR’s exception management capabilities are designed to enable organizations to focus on reviewing and managing exceptions through a flexible and transparent user interface. Accepted reports and exceptions are clearly shown, and a reason for the exception is given. Therefore, users can amend transactions for resubmission with an auditable and traceable history.

Pairing/Matching Resolution

In addition, once a TR report is acknowledged, the SFTR solution analyzes end-of-day TR reports and the dashboard displays any unpaired and unmatched reconciliation issues. With this type of clarity, reporting organizations can act and resolve any errors in a timely fashion. Trades can also be resent and resolved via the same exception management capability on the dashboard, providing counterparties with control over their SFTR compliance.