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LBMA Market Guidance: Securities Financing Transactions Regulation

Wednesday, April 15, 2020

LBMA issues market guidance on Securities Financing Transactions Regulation (SFTR)

Click here to read the market guidance published by LBMA for market participants in applying SFTR to their precious metals transactions.

Background

11 April 2020 marks the implementation date for the EU Securities Financing Transactions Regulation (SFTR). LBMA also welcomes the postponement of prioritising any supervisory action related to the first reporting deadline until 13 July 2020 given existing circumstances caused by the COVID-19 pandemic, as noted in ESMA’s recent statement.

SFTR aims to reduce systemic risk in the securities financing transaction (SFT) market by increasing transparency and regulatory surveillance. SFTR requires financial and non-financial counterparties to report both sides of any trades considered to be SFTs. Guidelines published by ESMA in January 2020 announced that commodities transactions entered into for operational or industrial (non-financial) purposes are not SFTs therefore are out of SFTR’s scope.

Market Guidance

In response to those ESMA Guidelines, LBMA has published market guidance to assist market participants in their application of SFTR and of the operational/industry purpose exemption. Having a market position will help to avoid any reporting inconsistencies, underreporting or over reporting.

The guidance also sets out how market participants ought to determine whether a spot/forward transaction is an SFT and how this can be reported accurately. Finally, the guidance sets out which reporting fields ought to be reported for each SFT and how, using the same type of reporting template in order to ensure consistent reporting across the market.

This guidance has been developed by LBMA with valuable contributions from its two SFTR Working Groups; one focusing on the scope and application of SFTR to precious metal transactions and one focusing on the operational reporting of those transactions deemed to be SFTs. These Working Groups comprise legal, compliance and operations representatives from market participants in the wholesale precious metals market.

LBMA Members continue to work towards full compliance up to the date of implementation and beyond, despite the late publication of the ESMA Guidelines and the noted ambiguities, and will use best efforts to apply existing regulatory and market guidance where possible to ensure accurate reporting from 13 July 2020.

Please get in touch with Rachel.Hart@lbma.org.uk with any questions in response to this guidance or for more information.

Resources

SFTR Text

ESMA webpage on SFTR

FCA webpage on SFTR

LBMA Market Guidance

 

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