On January 6, the European Securities and Markets Authority (ESMA) issued a series of documents concerning the Securities Financing Transaction Regulation (SFTR). SFTR came into force in January 2016, and the reporting obligations will “go live” on April 13.

ESMA issued the following documents:

  • Final Report: Guidelines on reporting under Article 4 and 12 SFTR (available here);
  • Guidelines: Reporting under Article 4 and 12 SFTR (available here);
  • Amended SFTR validation rules (available here); and
  • ESMA statement on implementation of the Legal Entity Identifier (LEI) requirements under the SFTR reporting regime (available here).

The two articles addressed in the Final Report and the Guidelines comprise the two major changes introduced by SFTR: the Article 4 obligation on counterparties to report to a trade repository all Securities Financing Transactions (SFTs) that the counterparty has concluded; and the Article 12 obligation on trade repositories to regularly publish aggregate positions and provide the relevant authorities with “direct and immediate” access to the reported data.

The Final Report and the Guidelines, therefore, cover many different areas, from the types of transactions and financial instruments that must be reported under SFTR, to more technical questions of how to fill in the various fields of the report. The Final Report and the Guidelines are the outcome of a consultation, which closed in July.

Regarding LEIs, ESMA observed in the Statement that “numerous pieces of EU legislation,” as well as legislation in other jurisdictions, require or will require the use of an LEI. ESMA also acknowledges that use of LEIs is not widespread outside of the EU and that “EU investors will face problems in using securities issued by non-EU issuers which have not yet obtained an LEI.”

For that reason, ESMA is allowing a 12-month “partial relaxation of the validation rules,” so that reports for third-country issuers without LEIs will be accepted until April 13, 2021. EU-based issuers and third-country issuers who have an LEI will not benefit from this “partial relaxation.” During this 12-month period, ESMA expects counterparties to liaise with third-country issuers “to ensure that they are aware of the requirements” and to encourage them to obtain an LEI.