SFTR – Commission delays RTS adoption. But is it legal?
How long does the EU Commission legally have to adopt a regulatory technical standard (RTS)? Specifically, how long does the Commission have to adopt the SFTR RTS given that they received it over a year ago. This article will present Market FinReg’s views.
Disclaimer: This is a matter of considerable public interest and represents Market FinReg’s Honest Opinion. The European Commission’s FISMA directorate and various trade bodies were contacted beforehand but chose not to comment. Absent a response we have published our views as are. We encourage the Commission and trade bodies to engage and would gladly publish their views.
The securities financing community waits with abated breath for the EU Commission to adopt SFTR transaction reporting details as presented in ESMA’s Technical Standards (RTS) on 31 March 2017. More than a year later and still no word from the Commission.
This delay is adversely affecting the Securities Lending industry.
SFTR transaction reporting will commence 12 months after the EU Commission (and subsequently Parliament & Council) adopts ESMA’s RTS. Therefore, until such time, the industry does not have a target start date.
Given SFTR transaction reporting’s unrivalled complexity, this is causing nervousness and consternation as firms are reluctant to commit build resources while the legislation is not finalised. An unhealthy cottage industry of rumour-mongering has sprung up trying to second guess the reason.
Lost in this sea of speculation is the real question: What does EU law say? How long does the Commission legally have to adopt the RTS?
Our analysis suggests the Commission is overstepping its legal remit. This is legal discussion about a grey area. We contacted various trade bodies but few firms are aware of the following analysis, fewer still are prepared to proffer an opinion.
With respect to SFTR Transaction reporting, The Commission has been empowered as follows.
Article 4(9) Commission Empowerments regarding Transaction Reporting
- Position Level Reporting:
“In developing those draft technical standards, ESMA shall take into account the technical specificities of pools of assets and shall provide for the possibility of reporting position level collateral data where appropriate.
ESMA shall submit those draft regulatory technical standards to the Commission by 13 January 2017.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.” 
- Harmonisation of formats.
“In developing those draft technical standards, ESMA shall take into account international developments and standards agreed at Union or global level.
ESMA shall submit those draft implementing technical standards to the Commission by 13 January 2017.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010.”
Other Commission empowerments
Article 30 empowerments do not refer to transaction reporting.
The Commission should be empowered to adopt implementing technical standards developed by ESMA by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010 with regard to the format and frequency of the reports,
Conclusion of Commission Empowerments discussion
ESMA delivered the “draft regulatory technical standards to the Commission” on 31 March 2017 – slightly overrunning its deadline of 13 January 2017.
The Commission is empowered under Articles 10 to 14 of Regulation (EU) No 1095/2010 and Article 15 of the same to adopt.
How long does the Commission have under of Regulation (EU) No 1095/2010 to adopt an RTS?
Analysis of Regulation (EU) No 1095/2010
REGULATION (EU) No 1095/2010 was the regulation that “establish[ed] a European Supervisory Authority (European Securities and Markets Authority)” – ESMA.
Article 10 discusses Regulatory Technical Standards (RTSs):
Where the Authority submits a draft regulatory technical standard, the Commission shall immediately forward it to the European Parliament and the Council.
Within 3 months of receipt of a draft regulatory technical standard, the Commission shall decide whether to endorse it. The Commission may endorse the draft regulatory technical standards in part only, or with amendments, where the Union’s interests so require.
Article 15 refers to related Implementing Technical standards (ITSs) and stipulates:
Within 3 months of receipt of a draft implementing technical standard, the Commission shall decide whether to endorse it. The Commission may extend that period by 1 month.
We have considered the amendments to this regulation, as detailed here, and cannot see anything that affects these time limits.
Based on this analysis, the Commission only has 3 months to adopt the RTS or otherwise.
Our motivation is to commence a much-needed dialogue. We would like to hear from other legal experts.
Industry bodies exist in large part to represent individual participants’ concerns. Such bodies and key players in the SFT space need to engage in a robust discussion with the Commission to nudge them into compliance.
A final note on SFTR 2.0. There are rumours that SFTR will be fundamentally changed reducing reporting fields from 153 to fewer than 50. This is not our understanding. ESMA engaged in extensive industry consultation during the formulation of the RTS. In its Final Report, ESMA discusses industry views, on occasion, accepts recommendations, on other occasions rejects them. This is in line with their obligations, per Article 10 of Regulation (EU) No 1095/2010:
Before submitting them to the Commission, the Authority shall conduct open public consultations on draft regulatory technical standards and analyse the potential related costs and benefits, unless such consultations and analyses are disproportionate in relation to the scope and impact of the draft regulatory technical standards concerned or in relation to the particular urgency of the matter…
Also, unbeknown to the public, the Commission was in private discussion with ESMA during its formation of the RTS. For these reasons any fundamental changes to SFTR reporting while possible, are unlikely.
Media outlets: are requested to link back to this article when citing or quoting.
Market FinReg is a leading management consultancy in financial regulation and law. Market FinReg is the first (and to date only) firm to offer accredited SFTR Transaction Reporting Training – including online. Enroll here.