Why SFTR compliance is an opportunity for greater data insight
The introduction of the Securities Finance Transaction Reporting (SFTR) directive, will give financial institutions an ideal opportunity to consolidate and improve their approach to data management. However, will firms take advantage of this opportunity? With a multitude of other priorities and an uncertain deadline, it is clear that the focus of many firms is not yet on SFTR compliance. However, given the large book of work required and that the poor state of many firms’ data will make SFTR compliance difficult to achieve, organisations should be planning now for a 2018 build.
The European Commission wants to increase the transparency of Securities Financing Transactions (SFTs) markets which are not covered by other regulations. SFTR will require firms to report all of their SFTs to an approved EU trade repository. The focus will be on reporting details for security lending repurchase agreements (repos) and margin lending activity. During the last decade, post trade securities finance has suffered from major underinvestment in comparison to other product lines. Attention has been given to regulations such as MiFID II and EMIR, with securities finance viewed as less of a priority. This situation is set to change.
Institutions will need to improve their data management to meet SFTR compliance, but should also embrace the opportunity to extract greater value from data that will lead to better business intelligence and insight.
How should firms approach SFTR compliance?
To implement an efficient compliance programme, firms need to be agile in their approach to the data requirements, which can also help to expose potential problems early on in the project. This will enable better planning and keep costs under control. Firms also need to understand the changes to their business model and client mix to ensure they chose the optimal operating model going forward.
This approach can be combined with a software solution to ensure efficient capture of all required data fields. The progress and compliance of SFTR can then be published in a transparent way. This is critical as some data will be difficult to source; however initial steps should include:
- Defining the legal entity, products and functions scope
- Focusing on effective harmonisation and transparency across the programme
- Reviewing data management solution (lineage is a good start as the meta output is defined and clear)
- Undertaking a cost / benefit and vendor analysis (despite this not being a regulatory requirement)
- Practice ‘Regulatory Agility’ to reduce delivery risk and facilities
- Calculating a cost-per-transaction value for ongoing reporting
Firms need to make iterative improvements during the development phase – which will help increase consistency and confidence in internal and external data during the lifespan of the project. Clear driving principles of data ownership will be key in order to address data quality, timeliness and accuracy.
Moving beyond compliance
The SFTR reports, whilst difficult to source, will provide a rich data set which many firms have not previously had available to them. Therefore, rather than attempting to just meet compliance for SFTR, institutions should take a more ambitious approach by going further and utilising these new data sets. By adopting this approach and maximising the re-use of data in a smart way, astute firms can recoup some of the costs they have been forced to spend in order to achieve compliance.
Valuable new data combinations can be derived from the new fields that have been added, such as LEIs, UTIs, collateral, settlement, agreement, instrument and business type. The combination and re-use of these data points will enable reporting dashboards to be created demonstrating valuable correlation and concentration risks that have not previously been available. New knowledge and insights can be identified across the company and the sector to inform risk intelligence.
With the deadline for the SFTR directive fast approaching, firms need to ensure they have a sustainable and low cost plan for how they will tackle the requirements laid out by the regulation. By looking beyond simply pulling data from disparate sources together into a single report; astute organisations will be those that take the opportunity to build additional value by using insight driven data management to achieve actionable intelligence during and after the implementation.