News & views

SFTR reporting – identifying key challenges and how to solve them

The first deadline for the implementation of the Securities Financing Transaction Regulation (SFTR) is April 2020. In this article we examine the key challenges for the wide range of firms that must act to achieve compliance in a short timescale, as well as the solutions.

Many organisations will feel a sense of deja-vu having worked hard under the MiFID II and EMIR regimes but the extra level of transparency and reporting on SFTs is even more taxing.

As a result, more creative and innovative solutions are needed. In particular, the requirement to have Unique Transaction Identifiers (UTIs) attached to each trade to ensure matching creates data challenges and further demands on resources.

The tolerances on reporting are minimal, resulting in a high risk of unmatched exceptions and this is exacerbated by the number of parties involved in a trade data flow.
 

SFTR reporting is typically subject to more manual processes, and thus the required change for this regulatory regime is greater in terms of process automation, data management and ultimately reporting.

Key challenges

  • The data components that make up a SFT are spread across multiple systems, and to be compliant, new fields of data need to be generated, including UTIs to enable trade reconciliation;

  • There is a need to extract all elements of the lifecycle of a transaction to be able to meet reporting obligations;

  • The generation of UTIs will be a significant challenge, both in terms of the rules that define which party is responsible but also the changes to systems and processes to accommodate these;

  • There are elements of SFTs that have, until now, been something of a black box, such as prime brokerage. There will need to be a greater degree of conformity on data standards, and there is a question as to whether businesses are ready to implement this;

  • The Securities business is split across multiple silos – Securities Lending, Margin Lending & REPO and traditionally each “business” will have its own systems, data and reporting infrastructure;

  • As with MiFID and MiFID II, significant change is required in technology strategy to plan and coordinate changes to systems. There is a balance to be met with regards to compliance demands and minimising the impact and disruption on day-to-day business and workload.

READ MORE: RegTech and Legacy - The path to better adoption

The path forwards

It’s clear that SFTR reporting provides us with a daunting challenge and a robust strategy is required to ensure both technology and business process changes are carefully managed.

Firms should assess not only what changes they must make in the short term to enable compliance, but in the longer term to ensure they have a sustainable model to meet the ongoing demands of the regulation.

An immediate focus should centre on the data required to meet the transaction reporting demands. Where does this currently reside? Where are the gaps? What 3rd party data is required for enrichment?

Firms should then look at developing an effective strategy for the extraction, management and reporting of the data to the trade repository. A short-term view may be to leave things as-is and re-use existing systems and infrastructure as much as possible, but this may result in a lost opportunity to overhaul the underlying data architecture and centralise the reporting function.

Realistically, the upcoming deadlines and resource demands will result in many firms using a short-term approach, but as outlined below, this could evolve into the following phases:

Phase 1 – Meeting Initial Requirement

Firms will initially look to update and enrich existing systems and reporting infrastructure to address their data gaps while integrating 3rd party reference feeds. Initially, transaction reporting may be driven separately by each business line.

Phase 2 - Consolidation and Centralise model

By standardising the transaction booking process, firms can look to consolidate securities systems across business lines, reduce redundancy and simplify data flows. This then enables central management of data and reporting infrastructure to enable a single reporting channel, hugely simplifying the maintenance of the transaction reporting process.

Phase 3 - Future technology

A further benefit of implementing a centralised model is that it will enable easier adoption of upcoming technology advancements. This can provide better automation and efficiencies as well as a competitive edge.  

A common domain model (CDM) for the securities business is on the horizon, which will enable the use of distributed ledger technology (DLT), which in turn opens up the benefits of smart contracts and increased straight through processing within the securities business. It’s vital that firms look ahead when planning their technology investment to enable alignment with upcoming developments.

In a nutshell

SFTR represents some immediate data challenges that will drive initial strategy and planning; however it’s important that the technology journey doesn’t end with initial SFTR compliance.

To be able to deliver a sustainable model for managing the demands of SFTR going forwards, firms should look to consolidate and centralise systems within the securities business area, reducing redundancy and simplifying reporting processes and infrastructure.

Financial institutions also need to look ahead to technology advancements that will disrupt and revolutionise the securities industry and ensure they are well placed to benefit from these.

At DMW, we can work with you to plan and deliver on the technology challenges your organisation currently faces regarding SFTR compliance, while our SFTR Technology Strategy enables you to plan your technology investment now and in the future.

Transform your tech strategy

SFTR---european-flag

Rob McPherson

Principal

Articles

DMW's family day & National STEM/STEAM day 2019

On the 8th November every year, we celebrate National STEM day. But what is it, why is it important and how does it relate to a large ...

Read more

Microsoft Ignite 2019: Satya Nadella's keynote speech

DMW are at Microsoft Ignite this week, one of the world’s leading cloud conferences.

Rob Merrett attended Microsoft CEO Satya Nadella’s ...

Read more

How to manage multiple financial regulations with sustainable technology

With increasing financial regulatory demands ramping up technology & process requirements, there is a growing need for both financial ...

Read more

Raising mental health awareness in the workplace

We asked one of our Mental Health First Aiders, John Kendrick, to write about the importance of good mental health as part of World ...

Read more

RegTech and Legacy - the path to better adoption

There are many benefits of using RegTech for the financial services industry, but there are also barriers that need to be overcome in ...

Read more

Market Abuse and Conduct Surveillance: Are you drowning in a sea of alerts?

A multi-faceted approach to transformation is needed in Financial institutions to combat market abuse.

Read more

Surveillance: Readying for the Seismic Shift

To date the overriding priority of surveillance in Financial Institutions has been one of coverage, but a seismic shift is upon us.

Read more

Stop trying to tame the data beast and learn to herd data critters

“The world’s most valuable resource is no longer oil, but data.” – The Economist, 2017  

Read more

Why celebrating Pride is more than just a banner at DMW

June is international Pride month, where we celebrate LGBT (Lesbian, Gay, Bisexual and Transgender) identities and highlight the work ...

Read more

Disrupt the digital challengers with transformation mindset

Transformation can no longer be seen as a one-off project, and for organisations to survive, it is becoming the new norm.

Read more

DMW on G-Cloud Framework

DMW delivers complex cloud migrations to public and private sector clients, supplying public sector organisations via the G-Cloud 11 ...

Read more

DMW welcomes... Naya Giannakopoulou

Happy International Women's Day! Over the course of recent months we have been delighted to welcome more brilliant women into the DMW ...

Read more

Helping our customers harness the power of cloud

We’re delighted to boost our cloud computing credentials with the announcement that we are now a Standard Consulting Partner in the AWS ...

Read more

DMW welcomes... Hani Qadiri

As DMW continues to grow at a blistering pace, we are welcoming more DMWers through the door than ever. Here is the first in a series of ...

Read more

The Cloud Brick Wall, Part 3 of 3

In the first two blog articles of our series from Konrad Petrusewicz, we started by covering the fundamental challenge of building a ...

Read more

CTO hot take from AWS re:Invent 2018

As the DMW Group team jet back from AWS re:invent, Amazon Web Services major cloud technology event in the states, we offer their ...

Read more

The Cloud Brick Wall, Part 2 of 3

An essential component of any Cloud migration is the actual code base that needs to be run and understanding how it operates within the ...

Read more

AWS re:Invent 2018 Keynote Hot Take

DMW are at AWS re:Invent 2018, the leading cloud technology event from Amazon Web Services in Las Vegas this week. Here’s our take on ...

Read more

The Cloud Brick Wall, Part 1 of 3

The Cloud Brick Wall is approaching. In this 3-part series of blog articles Konrad Petrusewicz maps out how to break through the brick ...

Read more