Improved transparency will prevent banks and other financial intermediaries from attempting to circumvent regulation by shifting parts of their activities to the less-regulated shadow banking sector.

Securities financing transactions, often carried out by the shadow banking sector, consist of any transaction that uses assets belonging to the counterparty to generate financing. They mostly involve lending or borrowing of securities and commodities, repurchase (repo) or reverse repurchase transactions, or buy-back/sell-back transactions.

A package of measures

The Commission presented its proposal in January 2014, together with a draft regulation on structural reform of the EU banking sector. The proposal is intended to counter the risk of trading activities based on securities financing transactions further developing without proper oversight, for instance outside the regulated banking system. To this end, it proposes binding transparency and reporting requirements for securities financing transactions.

Transparency

The draft regulation introduces measures to improve transparency in three main areas: 

• the monitoring of the build-up of systemic risks in the financial system related to securities financing transactions;
• the disclosure of information on such transactions to investors whose assets are employed in the transactions;
• reuse by banks or brokers for their own purposes of collateral provided by their clients.

Full press release