News Securities finance SFTR | SFTR XML Schemas Arrive Late and Bad
The European Securities and Markets Authority (ESMA) belatedly released the third draft of its Securities Financing Regulation (SFTR) transaction reporting XML schemas, but further guidance will be needed to resolve the flaws known before the April 2020 deadline, according to industry sources.
Market participants now fear that the SFTR suffers from the same reporting problems that affected the European Market Infrastructures Regulation (EMIR) and the Markets in Financial Instruments Regulation (MiFIR) when they entered into force. .
The timeline for developing each SFTR XML Schema project has reportedly been hampered by several delays, which means that the Evaluation Team (ET) of the ISO 20022 Security Standards Evaluation Group, which is responsible for reviewing and to approve ESMA’s submission for SFTR messages, was not had enough time to raise and resolve issues before the publication of the third draft.
In two meetings between ESMA and ET after the submission of the third project in mid-October, multiple flaws were highlighted by the ET, notably during a meeting on October 31. These concerns were acknowledged by ESMA at the time, but were not sufficient to delay the pre-arranged publication of the draft later the same day.
The main consequence of this is that common XML models are not ISO registered, which has been widely understood to be the required standard as defined in the level two text of the SFTR. An explanatory note attached to the third draft described the diagrams as being ISO compliant but did not claim that they were or would be stamped as such.
An industry source with knowledge of the subject, who wished to remain anonymous, said the ISO registration process would still be ongoing. ESMA is expected to submit a fourth XML draft to ET on November 15, which will then receive implicit ISO approval if no further concerns are raised by November 22.
Tomas Bremin, organizer of ISO ET and vice president of REGIS-TR, explained that the team’s latest findings were that workarounds would be needed if players in the securities finance market were to use the third current project as a reporting framework.
“We look forward to the ESMA guidelines in this regard,” he said, adding that the ET concluded its 10th meeting with ESMA last week and that a fourth project would be needed to officially obtain ISO registration.
“As the organizer of ISO ET gathered to review and approve ESMA’s submission to ISO 20022 of SFTR messages, I salute the team’s accomplishments in securing many and significant improvements to the submission of the second version of March on behalf of market players, ”Bremin continued.
However, several industry figures are now expressing concerns about the costs and challenges that will arise from the need for further changes to the reporting templates to address the flaws known today, as well as others that should be revealed once the report will start.
Reacting to the delayed release of XML, Matt Smith, CEO of SteelEye, a London-based regtech and data analytics provider, said: “The point is that we are six months before the regulation goes into effect and that ‘they just published the XML. format, and there is still plenty of room for interpretation. “
“We keep seeing the regulator not getting it right and leaving it very late. Six months is not a long time to have the XML fully standardized, ”he noted. “People have to develop their reporting skills, test them and go through validation and say that everyone is going to do it when they’ve just been released is impractical.”
“Regulators are as ill-prepared as the market. I think we’ll see some huge startup issues and it might take six months to a year for things to go right.
However, Smith went on to note that those targeted by the SFTR had more time to prepare this time around, compared to previous regulatory frameworks. He added that the work already devoted to reporting requirements for EMIR and MiFIR would provide a stepping stone to facilitate preparations for the SFTR.
ESMA declined to comment on XML schemas.