Securities Financing Transactions Regulation – Implications For UCITS And AIFs

The Securities Financing Transactions Regulation (EU Regulation No. 2015/2365) (the "SFTR") is part of the EU's legislative package to improve transparency and monitoring, not only in the traditional banking sector but also in areas where bank-like intermediation, known as shadow banking, takes place.  The SFTR is directly applicable to a wide range of financial and non-financial counterparties, including UCITS and AIFs (themselves defined as financial), and came into force on 12 January 2016 subject to various transitional provisions.

Securities Financing Transactions ("SFTs") are defined to include repo or reverse repo, securities or commodities lending/borrowing transactions, buy/sell-backs or sell/buy-backs and margin lending transactions¹.  Certain provisions of the SFTR apply additionally to collateral arrangements and, for UCITS and AIFs, to total return swaps.