Securities Financing Transaction Regulation (SFTR): Q&A with Head of Emerging Markets, Thomas Mills

Guy Whitley, Head of Business Development

Thomas Mills, Head of Emerging Market Sales

In the first of the series, Guy Whitley, JDX Head of Business Development, sits down virtually with Thomas Mills, JDX Head of Emerging Markets Sales, to discuss the current trends and themes Tom is seeing across our customer base and the broader marketplace. In this interview, Guy and Tom will look at Securities Financing Transactions Regulation (SFTR), and its impacts on our customers and their businesses when implementing SFTR compliance.

GUY: With the fast approaching SFTR go-live date of 13th July 2020, from your perspective Tom, what common challenges have you noticed our customers have been facing over the last few months in the run up to the compliance? Do you believe our customers are ready?

TOM: Interestingly, from those we have spoken to, it appears there is a direct correlation between the level of testing, and engagement in testing, with our customers’ confidence levels. Hearing woes of poor testing levels industry wide, it could be suggested that rather than satisfying exhaustive data requirements, the goal has shifted to completeness of transaction reports and addressing accuracy gaps. It is also evident that a lot of our customers have adjusted their expectations and moved some deliverables to be addressed post go-live.

GUY: We’ve seen a lot of discussion regarding data challenges – the extensive volume of transactions and data components that requires reporting and the complexity of external/internal data flows to create these reports. It follows therefore, that the more data our customers have, the more of a challenge testing is. Do you see effective management & controls surrounding data as being critical components of success?

TOM: When having initial conversations with our customers, one of the key areas we questioned was what level of data and information they had and whether the data quality held up in light of the new requirements. We also examined the current level of infrastructure and reporting models adopted. One of the key themes here is the use and reliance of vender technology. These conversations have been focused on assisting our customers to partner with the optimal data tooling/3rd party vendors, so they are able to control & manage their data – this reliance has brought our customers closer to achieving the July deadline.

We understand if you have a process heavily leveraging external architecture, there is only so much you can test without being fully transparent and cooperative on both sides. Our customers have had issues with external and internal systems not fully integrating which is causing some difficulties. Therefore, an interesting theme arising is the importance but over-reliance of 3rd party vendor architecture from a transparency perspective.

GUY: We have discussed data and testing as being two critical components as we go towards 13th July. What do you see as key challenges and opportunities for change for our customers post-go-live, and what do you think our customers need to focus on?

TOM: From our experience in EMIR and MIFID2 reporting, as well as a host of other regulations, we have supported our customers with building robust operating models, data architecture, controls & data quality, and triage. The interoperability of our, and our customers’, staff is key to assessing  where they can be best deployed across various functional areas: customer services, root cause analysis, remediation; there’s no question these functions will be required post-go-live. Further, it is also not a reflection on how successful your phase 1 has been – these are pivotal operational functions.

GUY: There is clearly an additional point here, as to whether our customers have robust controls set up to address the anticipated amass of breaks, both internal and external. How do you believe our customers then take the next step to solidify and optimise those controls?

TOM: One of the difficulties within transaction reporting is the multitude of concurrent challenges our customers our facing due to the complexity of this new regulation, coupled with significant changes in the trade repository landscape. This coincides with the complications of auditing, compliance and regulator requests regarding previous regulatory reporting implementations. Therefore, an unexpected rise in requests from customers has been surrounding mid-implementation ‘health checks’ as they are conscious of the need for traceability, not just implementation and full optimisation as they move into day 2.

GUY: Traceability from day 1 certainly makes sense, and in parallel, a keen focus on building automated cost-effective controls has to be a key priority, to remove risk, cost, and regain focus on the high value assurance tasks.

GUY: It is evident our customers are taking a different approach than we saw for EMIR reporting. For instance, where the focus was on creating controls, being ready to deal with customer queries and delegated reporting, there appears to be a shift in focus from ‘house reporting’ and regulation traceability, auditing and documentation. Customers now need to have complete confidence in the transparency of transaction reporting whilst ensuring they have all the necessary BAU controls in place. How important is sustainable compliance?

TOM: There is a fundamental importance on sustainable compliance for our customers and JDX are seeing a growing demand in health checks, assurance and lookbacks. Our customers are looking to create an optimal balance between mandatory regulation implementations and best practice. This speed of implementation needs to be balanced with traceability, both internal and extending across vendors, venues & beyond – which is not the easiest thing to do in the current market conditions.

GUY: Tom, thanks for sharing your insight. We look forward to catching up with you soon to hear more from the Emerging Markets sales team.

For any queries around implementing SFTR, EMIR compliance and what JDX can do to help, please contact us.