SFTR Alert: Buy-side reporting reprieve

February 25, 2020

A recent exchange of letters between the European Commission, ESMA and AIMA1 has confirmed that non-EU AIFs (irrespective of manager location) will not be subject to the SFTR2 reporting obligation, bringing welcome clarity for many buy-side participants.

Who should pay attention to this news?

Non-EU AIFs who otherwise expected to be in-scope for the SFTR reporting obligation i.e. those with EU AIFMs. 

The only exception is where those non-EU AIFs conclude SFTs3 through an EU-based branch. Whilst in practice such entities are few, those that do exist remain in-scope.

What does this relate to?

The SFTR reporting obligation4.

What is the SFTR reporting obligation?

The new mandatory reporting regime introduced by the SFTR, pursuant to which all in-scope entities must report SFTs on a T+1 basis. The reporting obligation is similar to the EMIR derivatives reporting obligation in force since 2012. Modifications and terminations of SFTs must also be reported. As with EMIR, performance of the SFTR reporting obligation may be delegated. 

The SFTR reporting regime will be phased-in over a nine-month period starting in April this year. NFCs must report from January 2021 and AIFs and UCITS are in scope for the October 2020 phase-in.

For those AIFs and UCITS that are in scope, SFTR allocates the responsibility for reporting to the AIFM and UCITS management company, respectively.

For more detail on the SFTR reporting obligation, see our 2019 SFTR alert5.

The SFTR regime

SFTR has applied in the EU since January 2016. The reporting obligation is the final obligation to take effect. SFTR’s other requirements relating to disclosure of SFTs and total return swaps with equivalent economic effect (pre-contractual and periodic for AIFs and UCITS)6 and reuse of collateral (for all “collateral arrangements” not just SFTs)7 are already in force.

Why now?

In contrast to EMIR, where it is generally considered that the reporting obligation applies to non-EU AIFs with EU AIFMs, there has been uncertainty about the scope of the SFTR reporting obligation.  

The SFTR reporting guidelines published by ESMA in January this year8 included a statement which seemed to confirm that non-EU AIFs with EU AIFMs would be caught by the reporting obligation. This triggered a rapid response from AIMA by way of letter to the European Commission and ESMA in January. Both responded swiftly. 

Entities previously in this grey area now have confirmation that they are out of scope and can avoid the expense and system build that would otherwise have been required.

When and what next?

For relevant entities, nothing to do, as of now: ESMA’s response indicates it does not consider that any action is necessary.

For those who remain in scope: get ready now. Familiarise yourself with the reporting obligation, which products are in-scope and how compliance will be achieved. Ahead of the phase-in of the reporting regime later this year, updates continue to be issued by regulatory bodies and trade associations. At the time of writing, ICMA had just published (24 February 2020) a guide on reporting repurchase transactions under the SFTR, alongside a suite of sample reports. 


1) The Alternative Investment Management Association. This news was
made public by ISLA (the International Securities Lending Association) on Friday 10 February 2020 when ISLA reported that “Responses provided by both the European Commission as well as ESMA provide explicit confirmation that “Non-EU AIFs (i.e. AIFs not established in the Union), are not subject to the obligations set out in Article 4(1) SFTR, even if the AIFM is authorised or registered in accordance with Directive 2011/61/EU, except in respect of SFTs concluded in the course of the operations of a branch in the Union of the Non-EU AIF.”.  The full text of that ISLA news alert can be found here. 

2) Regulation (EU) 2015/2365 (the “Securities Financing Transactions Regulation”) of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012.

3) The subject of the SFTR reporting obligation, “SFTs” or ‘Securities financing transactions’ which means: (i) a repurchase transaction; (ii) securities or commodities lending and securities or commodities borrowing; (iii) a buy-sell back transaction or sell-buy back transaction; (iv) a margin lending transaction.

4) Article 4 (Reporting obligation and safeguarding in respect of SFTs) SFTR.

5) Our SFTR reporting note, “SFTR Alert: Reporting Countdown” can be found here.

6) Article 13 (Transparency of collective investment undertakings in periodical reports) and Article 14 (Transparency of collective investment undertakings in pre-contractual documents) SFTR.

7)  Article 15  (Reuse of financial instruments received under a collateral
arrangement) SFTR.

8) The guidelines were part of a general ESMA update on SFTR published on 6 January.  The ESMA press release and related detail can be found here.

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