The 2008 financial crisis exposed significant flaws in the regulatory framework and oversight of the system for financial transactions. It also revealed the need for greater the transparency and supervision not only in the traditional banking industry however, also in sectors where non-banking activities occur, which is commonly referred to as”the “parallel bank system” and is referred to as Shadow Banking..securities financing
To be able to keep a close eye on the market developments of entities whose operations can be regarded as being related to the system of parallel banking particularly in the field of securities transactions for financing The Commission considers it important to establish transparent obligations.
The proposed regulation on structural reforms to the banking sector within the EU that comes with this plan is final part of the proposed regulatory frameworkthat assures that even the largest banks of the EU will be less complicated and be the subject of a successful resolution with no consequences for taxpayers.
As per the European Commission, an obligation to report through trade repositories can help solve the problems that have been identified.
The transactions involving securities financing within the system of parallel banks are therefore under appropriate supervision and regulation. Their use is not restricted or prohibited by specific restrictions but they will benefit from increased transparency.
Securities financing operations that are subject to this regulation are those of the banking industry that is parallel, which mostly include:
- The repo or repurchase agreement;
- Securities lending;
- The buy-sell back and the sell-buy back transactions;
- Then there are the transactions for margin lending.
for unregulated collective investment schemes (UCIs):The periodic report states that the undertakings for the collective investments in securities transferable (UCITS) managing companies, or UCITS investment firms and Alternative Investment Fund Managers be able to produce (beyond those required by the AIFM and UCITS V directives) will be completed with this additional information about how to use securities finance transactions as well as other financing arrangements similar to them.
One of the key elements of the proposal was to introduce governance in the rehypothecation process by establishing certain minimum requirements that must be adhered to in transactions between the parties involved for example, the existence of a written agreement that has been signed by the counterparties, full acceptance of the terms of the agreement, complete details of the possible dangers in the event of the default of a counterparty as well as the transfer prior to collateral into the bank account of the other counterparty.
The three principal actions from this Regulament/2012
- Obligations related to the re-use of funds(art.15) The rules are less stringent, and will be contingent on the outcomes from the group that is dedicated to re-use led by the Financial Stability Board (FSB). Master and collateral agreements must conform to the latest provisions in the regulations (client consent given for transfer or not granting entitlement). The regulations came into effect on the 13th of July, 2016.
- The information to the investors (art.14) (art.14): Current UCIs are given an 18-month period (13 July 2017) to revise pre-contractual documentation such as the prospectus. However in the case of art.13 (annual and half-yearly reports on financials) the deadline occurred on 13 January. UCIs closing date prior to 13 January 2017 was required to include updated information as per Annex A in the regulations.
- Compulsory notification of SFT (art.4): Delegated and implementing regulations entered into force on 11 April 2019 and SFTR reporting requirements apply as follows: 11 April 2020 for banks and investment firms, 11 July 2020 for Central Counterparties (CCPs) & Central Securities Depositories (CSDs); 11 October 2020 for other financial counterparties which include AIFs and UCITS, Pension Funds and Insurance/Reinsurance Companies; 11 January 2021 for Non-Financial Counterparties.
