The UK FCA finally proposed its own changes to the SFTR validation rules on 1 August 2023, subject to a consultation period ending on 15 September 2023, before taking effect on 4 November 2024.
This follows ESMA’s announcement in March 2023, due to come into effect in the EU on 11 September 2023. The proposals largely mirror ESMA’s changes with a few sensible twists – that will give small data quality benefits. In particular, the FCA is proposing using the EMIR Refit currency code validations (prohibiting special currency codes) and planning to add major post Libor benchmark interest rates such as €STR, SONIA and SOFR to the list of recognised floating rates and floating rebate rates. This last point is a big win and something that has likely frustrated regulators across Europe, with their inability to aggregate spurious ‘free text’ populated rates.
ESMA’s mirroring changes are to the list of actions that will mandate reporting counterparty details (nature & sector) and entity responsible for the report. There are clarifications around the method used to provide collateral (conditionality only applying to securities lending), clearing, open term, collateralisation of net exposure, type of collateral component, the uncollateralised securities lending flag and collateral market value. These are in addition to clarifications on report tracking numbers, permitted types of collateral and associated fields for securities lending (cannot be commodities collateral) and UTI for collateral updates when collateralisation of net exposure is false.
Finally, the UK cements its minor deviation from ESMA’s rules, with no reporting required for non-financial counterparties, through appropriate changes to the validation rules to reflect this.
The pressing issue is going to be the two speed validation rules changes, which will be running in parallel for the 15 months between September 2023 and November 2024. For any firm with both UK and EU SFTR reporting obligations, this is likely to prove significantly more onerous than the two and a half month wait that we saw last time…