The FCA also updated its webpage on the SFTR to confirm that it has also updated its approach to supervisory reporting to align with ESMA's revised approach.
ESMA’s revised statement
On 19 March 2020, ESMA published its statement on regulatory forbearance for the first phase of reporting obligations under SFTR which were due to become effective on 13 April 2020 for credit institutions and investment firms when acting as counterparties. This guidance was issued by ESMA as a result of ESMA being aware of the pressure that the financial industry is facing to comply with SFTR amid the COVID-19 Pandemic (please see our initial publication for more details).
On 26 March, ESMA issued a revised version of its initial statement saying that in response to feedback received from financial market participants and stakeholders, national competent authorities (“NCAs”) do not need to prioritise supervision and should apply a risk-based approach in terms of enforcement for any SFTs subject to the backloading requirements (in addition to those concluded between 13 April 2020 and 13 July 2020 (the first reporting phase)).
FCA revised statement
Pursuant to ESMA’s revised statement, the FCA has also confirmed that it will not prioritise supervision relating to the reporting of SFTs for firms which the backloading requirements specified in SFTR apply.
The backloading requirements under SFTR require reporting of SFTs entered into prior to the reporting commencement date (the “RCD”) which:
- remain outstanding on that date if their remaining maturity exceeds 180 days; or
- the SFT has an open maturity and remains outstanding 180 days after that date i.e. RCD +180 days.
While full backloading is optional, ESMA’s guidelines on SFTR state that counterparties covered by the same RCD should agree in advance on which day they backload the SFTs and in any case, the backloading should be done within 190 days of the relevant RCD.
The initial statement from ESMA would have allowed any new SFTs concluded after 13 April 2020 to benefit from the regulatory forbearance measures, whilst any SFTs concluded before or on 13 April 2020 (the first RCD) whose maturity extended past this date would be subject to strict compliance. This would have been somewhat inconsistent.
ESMA to continue monitoring impact by COVID-19
In its revised statement, ESMA reiterated that it will continue to monitor the implementation of SFTR as well as the impact of measures taken with regards to COVID-19, to ensure that there is alignment of SFT reporting requirements and supervisory practices in the EU.
ESMA’s revised statement extends the breathing space to backloading and ensures that a proportionate response is taken by NCAs in this critical time. CMS has industry leading experts that can help you manage your business response to the COVID-19 pandemic and advise on how to comply with your regulatory obligations given the pressures caused by this crisis.
Co-authored by Yeva Agayan