Delta Capita forms industry-wide group to ease SFTR implementation

21 May 2019 Consultancy.eu

Delta Capita has formed an industry-wide working group with the aim of helping financial services institutions in Europe prepare for the upcoming Securities Financing Transactions Regulation (SFTR).

The European Commission’s SFTR aims to increase transparency on the use of collateralised transactions, and on the risks around entering collateral arrangements. Collateralised transactions span in essence any transaction where securities are used to borrow cash, or vice versa, and include instruments such as repos, securities or commodity lending, borrowing transactions, margin loans and total risk return swaps. According to the International Capital Market Association (ICMA), the market for collateralised transactions is huge – the size of the repo market alone is estimated to be worth over €7 trillion. 

The new regulation, which is likely go-live at the end 2019/early 2020 for some of the main transparency requirements, obliges financial institutions and, ultimately, non-financial companies, to report such transactions to approved trade repositories. Organisations affected by SFTR, such as banks, investment firms, insurance companies, reinsurance undertakings and pension funds, are currently preparing their processes, systems and governance for compliance, with SFTR Transaction Reporting the first feature (Q4 2019) of the regulation that has to be complied with.

According to Joe Channer, CEO at Delta Capita, the financial services industry can make its preparations for SFTR more effective by embracing cross-company collaboration while adopting best practices learned from previous regulatory roll-outs. “One of the lessons the industry has learnt from European Market Infrastructure Regulation (EMIR) is the need for both efficient testing within firms and industry level co-ordinated testing.”SFTR - The Reporting Ecosystem

Delta Capita is a pan-European consulting and technology firm that helps financial services institutions with transformation and regulation. In a bid to better serve its clients in the SFTR space, the consultancy has established a working group of specialists and a blueprint for user acceptance testing and implementation. Channer: “With complex industry practices such as collateral treatment, life-cycle events and changes to disclosure mechanisms, the industry sees value in a robust, independent testing regime.” 

As part of the group’s inception, Delta Capita held various workshops involving 50 repo, stock lending and testing experts to agree on a strategy for SFTR testing. As a result, a standardised test pack for user acceptance testing has been developed, covering 227 SFTR trade scenarios and 54 life-cycle events. 

David Field, head of the Securities Finance practice at Delta Capita, elaborated; “The test pack will provide full traceability to the regulatory technical standards (RTS)/implementing technical standards (ITS), European Securities and Markets Authority guidance and industry best practices across repo, buy/sell back, stock borrow/loan and margin lending. It will provide users with the test data, test scripts and expected results they need to conduct their user acceptance testing and to test with their counterparts [trading venues, service providers, central counterparties, tri-party agents and trade repositories]. Consortium members will be able to benchmark their testing run rates and pass rates to highlight areas of concern for review and remediation.” 

Field added that the working group is aligned with industry trade associations, service providers and trade repositories. The International Securities Lending Association, an association that represent the interests of participants in the securities lending industry and one of the key players in the collateral landscape, has meanwhile given a vote of confidence to Delta Capita’s initiative, with CEO Andy Dyson stating “we will work with it wherever we can.”