A high-level overview of SFTR with some examples of its impact on established market practices

1. PMCR – Perpetual Motion Consulting and Research
Experts in Financial Regulations
SFTR
An executive overview

2. PMCRScope
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• Increase transparency of SFTs
• Better assessment of systemic riskWhy
• Regulation that introduces transaction reporting obligations for repo, buy-sell backs, securities
lending, margin lending and collateral re-use
• The regulation meets an international commitment agreed at G20 level, therefore signed by
the UK
What
• EEA firms and their branches, including those based in third countries
• EEA branches of third countries firm
• Counterparties that re-use collateral provided by the above firms
• Financial and non-financial firms; fund managers on behalf of their funds
Who
• T+1 for transactions and for life-cycle changes to transactions
• T+1 for collateral known at point of trade
• S+1 for collateral known at point of settlement
• 180-day rules for back-book trades which are open at regulation go-live
How
and
When

3. PMCRGoals
3
Improve
Disclosure
Investors
Regulators
Central Authorities
Improve Risk
Management
Awareness of higher
level of risk
Specific and consistent
guidelines
Rules on content of
portfolios
Minimise
Contagion
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4. PMCRPhases of implementation
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• Investment
firms
• Credit
institutions
Phase 1
• CCPs
• CSDsPhase 2
• Insurance
• UCITS
• AIF
• Pension
Funds
Phase 3
Non Financial
CounterpartiesPhase 4
11 April 2020 11 July 2020 11 October 2020 11 January 2021

5. PMCRScope of SFTR
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Securities or
Commodities
Lending and
Borrowing
Repos and
Reverse Repos
Sell Buy Back
and Buy Sell
Back Contracts
Margin Lending
and
Collateral Re-use

6. PMCRReporting to SFT Repositories
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Transaction
Level
Repo and Reverse Repo
Buy Sell Back,
Sell Buy Back
Security Lending and
Borrowing
Position Level
Margin Lending
Collateral Re-Use
Life-cycle
events
Correction,
Modification, Early
Termination, etc..
Collateral/Margin/Re-
Use/Valuation Update
Position component
update
Reportable
Action
10 Action types (not all
applicable)
32 SFT type/Action code
combination
Delegation
Mandatory delegation
for small Non Financial
Corpoates
Contractual delegation
possible
Liability for data
accuracy not delegated

7. PMCRReporting to SFT Repositories
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4 tables
Table 1
Counterparty Data
Table 2
Loan and Collateral Data
Table 3
Margin Data
Table 4
Re-use Data
• Total of 153 fields, 9 fields repeated in more than one table. Not every fields is relevant to each type of SFT
• 4 fields shared with MiFID II/MiFIR, 17 shared with EMIR
• 15 fields use LEI to identify entities
• ISIN and CFI used to identify securities, collateral components (if securities) and collateral packages (ISIN only)
• Industry group estimate about 40% of data not currently captured or not captured in that format
• Data` rules may trigger changes in business processes or market practices

8. PMCRData issues
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…
Corporate Data Landscape
Some data fields will be part of
the existing data landscape
Some data fields will be part of
the structure of the data
landscape but may be not be
available (e.g. ISIN to identify
securities used as collateral)
Some data fields will not be part
of the existing data landscape
Some data fields will be part of
the existing data landscape but
will be used as attributes of
different entities (e.g, LEI used for
entities other than clients)
Data Gathering
Data Gathering and
changes to the data
landscape
Changes to the data
landscape

9. PMCRUCITS and AI Fund Managers
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Investors Report
Disclosing to investors
what has happened
Prospectuses
Statement of intention
inviting prospects to
invest
SFTR results in an increased level of transparency.
Inconsistencies would have to be explained, not a
regulatory requirement but a client relationship
requirement.
Ultimate Owner’s Consent
To be secured before the SFT from the correct owner
• AUC – Straightforward
• AUM
• Managed Accounts – The client
• Funds – Depends on the ‘legal container’ of the fund (limited company, trust or
partnership) and on the principal of the SFT (Fund Manager or Fund)
• Margin Re-Use – The original collateral giver

10. PMCRHidden requirements for fund managers
• There is no obligation to change information on prospectuses of funds closed to new investors; but... annual
and semi-annual report require some comparison with the content of a prospectus. So, even if there is no
need to change an existing prospectus there may be a need to define what must be reported (e.g. the
maximum percentage of securities available for lending and the amount that has been lent out in the
reporting period)
• Existing procedures may have to be changed to accommodate SFTR. For instance if revenue from prime
brokerage fees is not captured at each fund level, the procedure that captures the costs and returns from
lending securities under management will have to be reviewed.
• New procedures may have to be put in place to prove compliance with governance rules. For instance, the
pre-sales documentation defines criteria to select counterparty (Legal Status, Country of Origin, Minimum
Credit Rating, etc.) you need to have a process in place that can prove that those criteria were complied with
in the reporting period
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11. PMCRHidden requirements
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SFT introduces very few processes beyond disclosure and
specific consent. However, the most disruptive side of SFT
are the changes to existing procedures or the new
procedures that have to be put in place to comply with
governance provisions or to report the information
required.
Those changes could have a serious disruptive effect to day
to day operations and may trigger changes to market
practices
Agent Lender Disclosure
Pairing and matching
during early phases of
implementation
Examples of challenges Agreeing on UTI
LEI of the issuer
Data gathering may take
longer than planned

12. PMCRNo grandfathering
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List existing
agreements with
owners of AUM or
AUC
Seek owner consents
Highlight funds
where not all
beneficial owners
have given consent
for re-use
It may not be
possible to use for
SFT funds without
100% consent or
AUC where the
owners did not give
consent.
List existing
arrangements
where securities or
commodities have
been given as
margin or collateral
Seek ultimate
owner consents
Highlight cases
where consent was
not given

13. PMCRFund management
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On a fund by fund basis, you
have to....
Set up a governance framework to cover
statement in the prospects concerning….
SFT Strategy
Counterparty
selection
criteria
Collateral
Type
Risk
Management
Rules
How SFT and
TRS will
generate
returns

14. PMCRHow we can help: Briefings, Impact, Gap Analysis
SFTR reporting rules are the visible
side of the iceberg, the challenges
are all in the submerged part. We
help you assess the whole iceberg!
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Briefings Impact Analysis Gap Analysis Implementation
30 mins to discuss your
company
1h of 30 mins of high
level tailored executive
briefing and Q&A
5 to 10 working days
using our tested
framework to define
the impact of SFTR and
your specific
requirements before
gap analysis
Data and functional gap
analysis, includes a plan
that prioritises
remedial action.
DATA LIABILITY
CANNOT BE
DELEGATED !!!!
We run and manage
the implantation
project
Our approach is scalable, tailored and cost-effective. We find the ‘surprises’ before they become issues!!

15. PMCR
We have analysed the
text of the regulations
and technical standards.
SFTR Specific approach
PHASE 1: UNDERSTANDING YOUR REGULATORY OBLIGATIONS
One man-day to understand your obligations (three meeting tops, fixed
cost).
PHASE 2: DEFINE YOUR COMPLIANT STATE
Based on the details of your obligations we map data, business
processes, procedures to plan a compliant environment that includes
data, processes, procedures, governance issues and whatever else you
need to be compliant and to prove compliance. The time required will
be agreed at the end of Phase 1.
PHASE 3: GAP ANALYSIS AND IMPLEMENTATION STRATEGY
The time required will be agreed at the end of Phase 2.
PHASE 4: YOUR IMPLEMENTATION STRATEGY
Whatever you choose to do…
• Build it yourself,
• Use external services,
• Buy third party software from vendors, or
• Leave implementation to us
Our approach means a faster implementation for
less money!!!
For more info, contact:
Our framework

16. PMCR
Perpetual Motion Consulting and Research
Experts in Financial regulations
www.ipmcons.com
2nd Floor, 1-2 Broadgate, London EC2M 2QS
info@ipmcons.com
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