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SFTR disclosures deadline

SFTR disclosures deadline

  • United Kingdom
  • Financial institutions - Asset managers and funds

06-07-2017

The EU Securities Financing Transactions Regulation (“SFTR”) lays down rules on the reuse of collateral and the transparency of securities financing transactions (“SFTs”), including reporting and disclosure requirements. See our previous briefing.

The SFTR requires UCITS management companies, UCITS investment companies and AIFMs to disclose specific information to investors about their use of SFTs and total return swaps in their periodic reports. A fund must also disclose information about this use on a pre-contractual basis in its prospectus. While the periodic reporting requirements have applied since 13 January 2017, the pre-contractual disclosure requirement will first apply from a week today, 13 July 2017, for funds and sub-funds which launched before 12 January 2016. New funds since 12 January 2016 have been subject to the disclosure requirements since that date.

For the purpose of the pre-contractual disclosure requirement the prospectus must specify which SFTs and total return swaps it is authorised to use, and include a clear statement that these transactions are used. In addition, the disclosure must include the information set out in Section B of the Annex to the SFTR, namely:

  • Types of assets that can be subject to them (as well as maximum proportion of AUM and expected proportion of AUM that can be subject to each of them).
  • Criteria used to select counterparties (including legal status, country of origin and minimum credit rating).
  • Acceptable collateral: description of acceptable collateral with regard to asset types, issuer, maturity, liquidity as well as the collateral diversification and correlation policies.
  • Collateral valuation: description of the collateral valuation methodology used and its rationale, and whether daily mark-to-market and daily variation margins are used.
  • Risk management: description of the risks linked to SFTs and total return swaps as well as risks linked to collateral management, such as operational, liquidity, counterparty, custody and legal risks and, where applicable, the risks arising from its reuse.
  • Specification of how assets subject to SFTs and total return swaps and collateral received are safe-kept (e.g. with fund custodian).
  • Specification of any restrictions (regulatory or self-imposed) on reuse of collateral.
  • Policy on sharing of return generated by SFTs and total return swaps: description of the proportions of the revenue generated by SFTs and total return swaps that is returned to the collective investment undertaking, and of the costs and fees assigned to the manager or third parties (e.g. the agent lender). The prospectus or disclosure to investors should also indicate if these are related parties to the manager.

The FCA have confirmed that they do not need to approve the updated prospectus including the disclosures and a revised version of the prospectus should simply be filed with the FCA after its adoption. The FCA have also confirmed that if these disclosures are not applicable, there is no need to include a negative statement in the prospectus, although many clients are choosing to do so for clarity. If you would like further details of how the SFTR may impact you, do speak to your usual Eversheds Sutherland contact.

 

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