[co-author: Philippa List]

A recent exchange of letters between the European Commission and ESMA and AIMA¹ has confirmed that non-EU AIFs (irrespective of manager location) will not be subject to the SFTR² reporting obligation, bringing welcome clarity for many buy-side participants.

Who should pay attention to this news?

Non-EU AIFs who otherwise expected to be in-scope for the SFTR reporting obligation i.e. those with EU AIFMs.

The only exception is where those non-EU AIFs conclude SFTs³ through an EU-based branch. Whilst in practice such entities are few, those that do exist remain in-scope.

What does this relate to?

The SFTR reporting obligation⁴.

What is the SFTR reporting obligation?

The new mandatory reporting regime introduced by the SFTR, pursuant to which all in-scope entities must report SFTs on a T+1 basis. The reporting obligation is similar to the EMIR derivatives reporting obligation in force since 2012. Modifications and terminations of SFTs must also be reported. As with EMIR, performance of the SFTR reporting obligation may be delegated.

The SFTR reporting regime will be phased-in over a nine-month period starting in April this year. NFCs must report from January 2021 and AIFs and UCITS are in scope for the October 2020 phase-in.

For those AIFs and UCITS that are in scope, SFTR allocates the responsibility for reporting to the AIFM and UCITS management company, respectively.

For more detail on the SFTR reporting obligation, see our 2019 SFTR alert⁵.

The SFTR regime

SFTR has applied in the EU since January 2016. The reporting obligation is the final obligation to take effect. SFTR’s other requirements relating to disclosure of SFTs and total return swaps with equivalent economic effect (pre-contractual and periodic for AIFs and UCITS)⁶ and reuse of collateral (for all “collateral arrangements” not just SFTs)⁷ are already in force.

Why now?

In contrast to EMIR, where it is generally considered that the reporting obligation applies to non-EU AIFs with EU AIFMs, there has been uncertainty about the scope of the SFTR reporting obligation.

The SFTR reporting guidelines published by ESMA in January this year⁸ included a statement which seemed to confirm that non-EU AIFs with EU AIFMs would be caught by the reporting obligation. This triggered a rapid response from AIMA by way of letter to the European Commission and ESMA in January. Both responded swiftly.

Entities previously in this grey area now have confirmation that they are out of scope and can avoid the expense and system build that would otherwise have been required.

When and what next?

For relevant entities, nothing to do, as of now: ESMA’s response indicates it does not consider that any action is necessary.

For those who remain in scope: get ready now. Familiarise yourself with the reporting obligation, which products are in-scope and how compliance will be achieved. Ahead of the phase-in of the reporting regime later this year, updates continue to be issued by regulatory bodies and trade associations. At the time of writing, ICMA had just published (24 February 2020) a guide on reporting repurchase transactions under the SFTR, alongside a suite of sample reports.

Footnotes