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EU Regulation on securities financing transactions: entry into force on 12 January 2016
07 January 2016

EU Regulation on securities financing transactions: entry into force on 12 January 2016

Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse was published in the Official Journal of the European Union on 23 December 2015. It will enter into force on 12 January 2016. Application of the requirements provided in this regulation will be spread over time.

Objectives of the regulation

Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse is derives from international work conducted on shadow banking. Its purpose is to enhance transparency on the market of securities financing transactions (i.e. mainly securities lending and borrowing and repurchase agreements) and of the reuse of financial instruments provided as collateral by counterparties. The objective is not only to enable regulators and supervisors to monitor the build-up and spread of risks linked to these transactions, but also to improve information for investors.

Three new types of requirements

The regulation on transparency of securities financing transactions (SFT) and of reuse introduces three new types of requirements.

Reporting obligation of SFT to trade repositories

This reporting requirement applies to any financial and non-financial counterparty established in the European Union that is a party to a securities financing transaction. It also applies to all their branches irrespective of where they are located as well as to the European branches of counterparties established in a third country. In order to determine the format, frequency and content of the information to be reported, the Regulation provides that ESMA develops draft regulatory technical standards, which shall be submitted to the European Commission by 13 January 2017. Depending on the type of counterparty, this reporting obligation will apply on a phased basis as of 2018. Nevertheless, as of 12 January 2016, all counterparties shall keep a record of any SFT that they have concluded, modified or terminated for at least five years following the termination of the transaction.

Obligation to publish information on the use of SFT and Total Return Swaps

Fund management companies have to include certain information detailed in the Annex to the Regulation in their periodical reports (section A of the Annex) and in their pre-investment documents (the prospectus notably) (section B of the Annex). This requirement applies to UCITS and alternative investment funds managed by authorised AIFM. The requirement with regard to periodical reports applies as of 13 January 2017. The requirement related to pre-contractual documents applies as of 12 January 2016 for funds constituted after this date and as of 13 July 2017 for funds constituted prior to this date.

Transparency of reuse of financial instruments received under a collateral agreement

The following conditions should be fulfilled by the receiving counterparty before it exercises its right of re-use:

  • the counterparty providing the collateral shall be duly informed of the risks and consequences of the reuse,
  • the providing counterparty has to grant its prior express consent, and 
  • the financial instruments that are the object of the reuse have to be transferred from the account of the providing company.

These provisions shall apply from 13 July 2016, including for collateral arrangements existing on that date.

Projected entry-into-force timetable

Requirements provided in regulation 2015/2365 Details of the requirement Investment firms and credit institutions Clearing houses, central depositaries UCITS and AIF and/or their management companies Non-financial counterparties
Reporting obligation and safeguarding (art 4.4) Requirement to keep a record of any SFT concluded, modified or terminated for at least five years following the termination of the transaction 12 January 2016 12 January 2016 12 January 2016 12 January 2016
Reporting obligation and safeguarding (art. 4.1) Requirement to report details of SFTs to a trade repository [1] January 2018 (Projected) April 2018 (Projected) July 2018 (Projected) October 2018 (Projected)
Transparency requirement
(art. 13 and 14)
Prospectuses for funds constituted after 12 January 2016 shall include the data provided in section B of the Annex N/A N/A 12 January 2016 N/A
Transparency requirement
(art. 13 and 14)
Periodical reports for funds shall include the data provided in section A of the Annex N/A N/A 13 January 2017 N/A
Transparency requirement
(art. 13 and 14)
Prospectuses for funds constituted before 12 January 2016 shall include the data provided in section B of the Annex N/A N/A 13 July 2017 N/A
Transparency of reuse (art. 15) Entry into force of provisions relating to reuse of securities received as collateral (including for collateral agreements existing on that date) 13 July 2016 13 July 2016 13 July 2016 13 July 2016

 

[1] These dates are indicative and will depend on the time taken by the European Commission to adopt the draft regulatory technical standards drawn up by ESMA and objections that could be raised by the European Parliament and Council.