SFTR Newsflash: Clarification from ESMA on the UCITS/AIFM transparency report requirements

ESMA has clarified a particular point in respect of SFTR in an updated version of its Q&As (dated 06 October 2016) in respect of AIFMD.

The clarification is in respect of Article 13 of SFTR, pursuant to which UCITS management companies/investment companies and Alternative Investment Fund Managers are obliged to inform investors of the use they make of SFTs and total return swaps (TRSs) in the annual (and also half-yearly, in the case of UCITS) reports required by the UCITS Directive and the AIFM Directive, respectively. This obligation to include additional information in such reports applies from 13 January 2017.

It was not clear from the text of Article 13 of SFTR whether this obligation only arose in respect of the first annual report published after the 13 January 2017 (i.e. which could then include information about use of SFTs/TRSs during a period before 13 January 2017), or whether the obligation only arose in respect of the first report published in respect of a full financial year after 13 January 2017 (i.e. which could then mean that the first report that needed to comply might only be one published in 2018).

In the updated AIFMD Q&A, ESMA has now clarified that it is the former. The full Q&A is set out below.

Section XIII: Impact of Regulation (EU) 2015/2365 (SFTR)14 on AIFMD

Date last updated: 6 October 2016

Question 1 [last update 6 October 2016]: Article 13 of Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012, requires UCITS management companies, UCITS investment companies, and AIFMs to provide information to investors on the use made of SFTs and total return swaps in the annual report of each UCITS/AIF under management, as well as in each half-yearly report for UCITS. As Article 13 applies from 13 January 2017, which report should be the first to include this disclosure?

Answer: The information should be included in the next annual or half-yearly report to be published after 13 January 2017 which may relate to a reporting period beginning before that date.

In other recent SFTR news, ESMA has published a Consultation Paper in respect of the SFTR obligation to report details of SFTs to Trade Repositories. The consultation focuses on registration of Trade Repositories, the details to be reported and regulatory access to the reported data. The consultation, which includes a draft RTS specifying the details of what needs to be reported, is open until 30 November.

By way of reminder, the reporting obligation under SFTR applies to MiFID firms, EU credit institutions (and third country equivalents that operate out of EU branches) only 12 months after the entry into force of the reporting RTS, and to other financial counterparties subject to the reporting obligation only 18 months after the entry into force of the reporting RTS, and to non-financial counterparties subject to the reporting obligation only 21 months after the entry into force of the reporting RTS.