Entities engaging in securities financing transactions and total return swaps, including UCITS management companies, UCITS investment companies and Alternative Investment Fund Managers ("AIFMs") will be aware of the EU Regulation on reporting and transparency of securities financing transactions (the "SFT Regulation") that entered into force on 12 January, 2016.
As a reminder, the SFT Regulation provides for reporting and disclosure requirements (subject to certain transitional implementation dates) with the aim of improving the transparency of securities financing transactions ("SFTs") in the shadow banking sector. SFTs are specifically defined in the SFT Regulation as follows:
- a repurchase transaction (to include reverse repos)
- securities or commodities lending/borrowing
- a buy-sell back or sell-buy back transaction
- a margin lending transaction
A link to our previous briefing on the SFT Regulation can be found here.
We now wish to remind you of the disclosure requirements for the annual and half-yearly reports in light of the UPCOMING DEADLINE.
Annual report and half-yearly report
Article 13 of the SFT Regulation requires UCITS management companies, UCITS investment companies, and AIFMs to provide information to investors on the use made of SFTs and total return swaps in the annual report of each UCITS/AIF under management, as well as in each half-yearly report for UCITS.
Article 13 of the SFT Regulation applies from 13 January 2017.
So, which report should first include this disclosure?
The European Securities and Markets Association (ESMA) have recently confirmed that the information should be included in the next annual or half-yearly report to be published after 13 January 2017.
This now clarifies that the requirements apply to financial statements covering a reporting period before 13 January 2017 (e.g. investment funds with a year end as of 30 September or annual/half yearly reports with a reporting period ending 31 December, 2016) and which are published after 13 January 2017.
What needs to be included?
UCITS management companies and AIFMs shall inform investors on the use they make of SFTs and total return swaps and this shall be included in the annual and semi-annual accounts for UCITS and annual accounts for AIFs.
Some of the disclosures are partially covered through existing GAAP or in other regulatory requirements. However, most of the requirements are new.
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