ESMA issues final report on SFTR, tackles non-EU LEIs
The European Securities and Markets Authority (ESMA) has released a final report on the securities financing transactions regulation (SFTR), as well as some validation rules for non-EU legal entity identifiers (LEIs).
In the report, the regulator makes note of industry concerns about LEIs for both EU and third-country jurisdictions. It highlighted survey results that showed 88% of financial instruments issues by EU firms have an LEI code, while non-EU entities average 30%.
“As a result, when the SFTR reporting regime will start, EU investors will face problems in using securities issued by non-EU issuers which have not yet obtained a LEI,” writes ESMA.
In response, ESMA is implementing a 12-month window following the implementation of SFTR in which reports from entities outside the European Economic Area (EEA) without an LEI will be accepted.
Despite this, the regulator has impressed on lenders and agents to ensure that CCPs outside the EU are aware that the grace period will only last for a year, and that ESMA expects them to comply by April 2021.
SFTR, first published in 2016, requires firms to report their securities financing transactions (SFTs) to a trade repository registered by ESMA.
The first phase of SFTR is coming into force in April for investment firms and credit institutions, and then in July for central counterparties (CCPs) and central securities depositories (CSDs).