Regulation (EU) 2015/2365 on the transparency of securities financing transactions and of reuse (SFTR) aims to get a better understanding of the effects of shadow banking (non-bank credit intermediation) and to address the risks posed by securities financing transactions (SFTs).
The European Commission (Commission) has now published a report that it is mandated to produce under Article 29(3) of the SFTR, “on progress in international efforts to mitigate the risks associated with SFTs, including the Financial Stability Board (FSB) recommendations for haircuts on non-centrally cleared SFTs, and on the appropriateness of those recommendations for Union markets.” The report also provides a brief assessment of European SFT markets.
At the international level the FSB adopted a policy framework in August 2013 for addressing shadow banking risks in securities lending and repos. The framework includes a set of policy recommendations and was endorsed by G20 leaders in September 2013. A number of the recommendations are designed to enhance the transparency of SFT markets though frequent and granular regulatory reporting. The SFTR responds to these recommendations at the EU level.
The Commission’s overall conclusions in the report include:
- to a certain extent, the FSB recommendations on SFTs have been addressed in the EU through the adoption of the SFTR and specific provisions in sectoral financial services legislation and guidelines. As such, there does not seem to be a need for further regulatory action at this stage; and
- that developments in SFT markets will be monitored. The Commission will reassess the added value of qualitative standards and haircut floors on the basis of a report to be prepared by ESMA once comprehensive SFT data is available.