It is important to recognise the efforts undertaken by the financial services industry that have helped to reduce the probability of collateral shortage. Collateral management innovations and services that seek to improve the fluidity of collateral movements or the efficiency of collateral allocation, are in that sense very important. The current work of regulators on measures to estimate the re-use of collateral will also play a major role in our understanding of the potential risks and benefits associated with this practice.
Regulation is only one of the forces that have led to structural changes in SFT markets. The current unusual monetary policy with very low levels of interest rates creates strains on the profitability of EU financial institutions and this has an impact on the availability of collateral, although the exact relationship is a complex one. On the one hand, some securities financing activities have declined as trades became non-profitable. On the other hand, low interest rates create an incentive for asset holders to make a larger portion of their assets available for lending, in order to generate extra returns.
It is also true that SFTR is a new reporting regime, which will require certain adaptations to your systems. ESMA would like to echo Commissioner Hill’s statement regarding the reporting burden in the EU and aims to structure SFTR reporting and data collection in a way that the relevant parties only need to undertake limited updates to their systems to ensure compliance with the SFTR reporting obligation. The co-legislators have also clearly indicated their intention to minimise additional operational costs for market participants by building on pre-existing infrastructures, and operational processes and formats which have been introduced with regard to reporting derivative contracts to trade repositories. In that context, ESMA, to the extent feasible and relevant, is mandated “to minimise overlaps and avoid inconsistencies between the technical standards” adopted pursuant to SFTR and those adopted pursuant to Article 9 of EMIR.
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