Update on UK SFTR Validation Rules and XML Schemas

Earlier this month the UK FCA launched a consultation on several draft changes to UK SFTR validation rules and XML schemas. Industry feedback on the proposals can be shared directly with the FCA until 15 September 2023. Changes will take effect on 04 November 2024.

The FCA states that this round of changes is triggered by industry challenges experienced with SFTR reporting to date, addressing data quality issues and, to a lesser degree, following a similar validation update by ESMA in the EU earlier this year.

What are the proposed SFTR validation changes?

The UK FCA published, via Excel spreadsheet, 48 line-by-line validation updates most of which are helpful clarifications to assist the market with data quality.

In the main the FCA have adopted ESMA’s latest validations with some notable exceptions:

• The FCA will disallow several ‘special’ CCY codes across seventeen Currency fields to align with the EMIR Refit schema leading to divergence with the EU, until presumably, ESMA perform a SFTR Refit and re-align.
• Firms should also be mindful of changes to field 2.75 Type of Collateral where, similar to ESMA, it seems a missed opportunity to align the conditions for 2.75 along with 2.96 where the SL flag in 2.72 = ‘true’.
• Change 17, if performed correctly by a firm, should have no impact as this field is required when reporting price as Unit + CCY. However, fields 2.49 and 2.87 can also contain Percentage or Yield which do not require CCY which may lead to a validation failure.

What are the challenges ahead?

The trickle-down impact of these changes hit busy firms in several ways:

• We are already in a period of significant regulatory change: on 11 September the new EU SFTR validation rules come into force followed by larger regime changes in the US, Japan and Europe. Amidst this busy regulatory agenda, assessing the impact is urgent and as important as ever, yet challenging due to fully-engaged regulatory Business Analysts.
• In assessing the impact, Cappitech reviewed the 48 points of analysis across 46 reporting fields. Each of these points will have to be considered on its own then traced up to the reporting firm’s golden source for data and cross-checked with any down-stream systems and reporting partners.
• Keeping in mind that EU SFTR changes go into effect on 11 September, pan-European firms will have to manage 2 SFTR regimes with different personalities until the UK changes take effect on 4 November 2024.
• But post November 2024, the UK and EU versions of SFTR will never be the same and real divergence will be set in concrete with no reporting requirement for UK NFCs.

What are next steps?

Navigating through potential changes can be a complex journey and firms should avail themselves of the resources available to respond accordingly. For instance, we have developed a comprehensive gap analysis framework that helps identify crucial areas where adjustments are needed. In addition, firms can work with their industry advocacy associations to formulate a group response to the FCA by 15 September. Finally, we have created an SFTR UAT environment to help prepare for EU validation changes coming into effect on 11 September.

Contact us to learn more.

About the author: Len Delicaet

Len Delicaet’s is an Executive Director at S&P Global Market Intelligence Cappitech. He has over 25 years experience in consulting, banking and regulation and currently concentrates on Regulatory Affairs globally. Len often contributes on industry panels and in publications on regulations such as MiFID/MiFIR, EMIR and SFTR.