AFME briefing note: Securities Financing Transaction Regulation
30 January 2015
Whilst AFME supports the objectives of the SFTR, it is of vital importance that the regulation strikes the right balance between increasing transparency and preserving the important function of SFTs.
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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