Coronavirus - ESMA delays SFTR reporting obligation to mitigate impact of COVID-19 - Europe

The European Securities and Markets Authority (“ESMA”) has issued a public statement, “Actions to mitigate the impact of COVID-19 on the EU financial markets” urging national competent authorities not to prioritise supervisory actions in respect of firms in-scope of the first phase of the Securities Financing Transactions Regulation (“SFTR”) until 13 July 2020.

Background

The COVID-19 pandemic has created significant challenges for firms in respect of their compliance with their regulatory requirements. Global regulators have responded to these challenges by providing temporary and targeted relief in respect of certain regulatory requirements.

On 16 March 2020, the International Capital Markets Association (“ICMA”) and the International Securities Lending Association (“ISLA”) wrote to ESMA in order to request a delay to the implementation of the first stage of the SFTR reporting requirements, “Letter on Impact of COVID-19 on SFTR implementation programmes”. The initial phase of the SFTR reporting requirements was scheduled to apply to credit institutions and investment firms from 11 April 2020. For detailed background in relation to the SFTR reporting requirements see our previous briefing, “Detailed SFTR reporting requirements published”.

ICMA and ISLA noted in their letter that the COVID-19 pandemic has had a material impact on personnel and created surges in market volatility and transaction volumes which has in turn impacted the readiness of in-scope firms to comply with SFTR requirements from 11 April 2020. For many entities, in particular buy-side firms, the challenges of compliance with the 11 April 2020 deadline were already significant. For more information regarding the challenges for buy-side firms, please see our prior briefing, “Buy-side perspective: Issues with delegation of SFTR reporting cause a headache”.

In their letter, ICMA and ISLA requested that ESMA either: 

• delay the go-live date for SFTR reporting in light of the global pandemic; or

• in the event a delay is not granted, to provide equivalent forbearance and/or sufficient reassurance to market participants that they will not be required to adhere strictly to the legal reporting start date for an appropriate period of time.

ESMA’s statement

In its response to ICMA’s and ISLA’s letter, ESMA highlighted that it understood the considerable pressure that the financial services sector is under to comply with the new measures imposed under SFTR whilst dealing with the impact of the COVID-19 pandemic, both from an employee health and business continuity perspective.

ESMA went on to clarify that the first phase of SFTR reporting requirements would be delayed by three months to 13 July 2020. In addition, ESMA will not require Trade Repositories (“TRs”) to register with them ahead of 13 April 2020, thereby allowing TRs to focus their efforts on dealing with the effects of COVID-19.

The statement issued by ESMA will be welcomed by credit institutions and investment firms as they continue to face considerable pressures following the unprecedented impacts presented by COVID-19.

There will, however, be some firms that will feel that the delay does not go far enough and had hoped for a longer delay period, for example until 12 October 2020 (the existing deadline applicable to the majority of buy-side firms). ESMA has however committed to monitor the current situation and the impact of measures taken to combat the effects of the COVID-19 pandemic.

How can Eversheds Sutherland help?

Eversheds Sutherland’s global derivatives practice supports clients across all major financial markets. We can work with clients in order to scope their reporting obligations and review the documentation associated with their engagement with trade repositories.

We can also work with clients to ensure that their reporting delegation arrangements are appropriate.