AFME supports the implementation of FSB’s regulatory framework for haircuts on non-centrally cleared SFTs published in October 2014. However, AFME believes that the SFTR proposal is not an appropriate legislative vehicle for the introduction of the framework for the following reasons:
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Haircuts were not part of the Commission’s proposal and, as such, have not undergone a detailed impact assessment – this analysis is essential to consider the specificities of European markets
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Haircuts regulation is of great significance to the SFT markets – this calls for a full Level 1 debate and policy steer by the European legislators
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AFME believes that the prudential CRR/CRD framework would be a more appropriate channel for the implementation of requirements in relation to transactions between banks and non-banks as haircuts need to operate in conjunction with the prudential capital regime (Basel has been asked by the FSB to determined the interaction with the prudential regime)
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The introduction of haircuts regulation would delay the implementation of transparency requirements identified as an immediate priority by the FSB and the ECB
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The FSB haircuts requirements are still under consultation and are yet to be finalised in full; as such there will need to be a global harmonised framework
AFME recommends that for securities lending and margin lending position level reporting is most appropriate. Furthermore, AFME strongly recommends that the SFTR contain a clear, unambiguous and objective definition of SFTs so that reporting can be operationalised. Further, the term “economically equivalent transactions” proposed by the Commission introduces a subjective criterion, which would lead to inconsistencies in reporting.
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