Financial institutions need to maintain a herd mentality when it comes to testing and preparing to operate under the Securities and Financing Transaction Regulation (SFTR), says Mark Steadman, executive director at the Depository Trust & Clearing Corporation (DTCC).
“The thing with regulatory reporting is that it is a necessity, where it pays to be in the herd and not out on your own. Obviously in trading that’s not always the case, people sometimes want to bet against the market. But with reporting it’s definitely a net benefit to work together as an industry.
“It’s a small part of the market [that does work individually],” adds Steadman. “There are some firms that may not want to take part because they feel they are further ahead than others and don’t want to share what they’re doing. That’s a risky approach in my view, because you may not have everything covered even if you think you do.”
According to a June survey undertaken by Luxoft, a consultancy, 74 percent of compliance professionals at investment banks believe SFTR will require a much more complex IT infrastructure. Despite that, 99 percent said they were confident they could meet the deadline.
“It would be somewhat naïve to think that with a regulation as sophisticated and complex as SFTR everyone is going to start testing and that it is going to work out straight away,” says Steadman.
“Some firms are further along the way than others. We have several firms testing with us already which is great, seven or eight months prior to the go-live period which is fantastic to see. But we also have clients who are still responding to RFPs so clearly, they are behind.
“[Readiness] is a common question you’ll find at industry forums and the results that come out of that question are not always promising. Certainly, the bigger banks are in a good state of readiness, and we’re encouraged in what we see amongst that group. When you drop down to Tier 2 and Tier 3 you get a different type of readiness level.”
In August the International Swaps and Derivatives Association (Isda), the International Capital Market Association (ICMA), the International Securities Lending Association (Isla), and the Futures Industry Association (FIA), announced the creation of a new Master Reporting Agreement for SFTR.
DTCC has recently signed a partnership with Delta Capita to implement an SFTR testing pack for its trade repository.
“Generally, firms see the benefit of collaborating when it comes to regulatory reporting and that’s something that can be seen through the various industry working groups and the work of regulatory bodies,” adds Steadman. “Firms know that they need to be in the pack to achieve efficiencies.
“It benefits to have everyone on the same page. If the whole industry is working collaboratively then it can move forward as one. And even if things are going wrong then there can be a conversation with the regulators as a group, not as an individual firm, which is an important difference.”