European Union: The SFT Regulation

Last Updated: 13 May 2016
Article by Claire Cummings


The Securities Financing Transactions Regulation [EU 2015/2365] (SFT Regulation) introduces mandatory reporting for securities financing transactions (SFTs) and sets minimum disclosure and consent requirements on the re-use of collateral, with the aim of reforming shadow banking and improving transparency in the SFT market. The SFT Regulation was formally adopted by the EU on 16 November 2015 and was published in the Official Journal on 23 December 2015. The SFT Regulation will come into force 20 days after its publication in the Official Journal, namely 12 January 2016, with the exception of certain provisions set out in Article 33.

Purpose of the SFT Regulation

According to a factsheet published by the European Commission on 29 October 2015, the shadow banking sector needs to be better monitored because of its size, its close links to the regulated financial sector and the systemic risks that it may pose. There is also a particular need to prevent the shadow banking system from being used for regulatory arbitrage. Increasing transparency and reducing risks associated with SFTs have been identified as two of the Commission's main priorities, which the SFT Regulation aims to address. It will notably allow supervisors to access detailed, reliable and comprehensive data to monitor risks originating in shadow banking and to intervene when necessary.

Scope of the SFT Regulation

The SFT Regulation will:

(i) require all SFTs to be reported to trade repositories, similar to the reporting obligation imposed on derivatives under EMIR;

(ii) place additional disclosure and reporting requirements on investment managers, similar to those imposed on UCITS managers and AIFMs pursuant to the UCITS Directive and AIFMD respectively; and

(iii) require prior risk disclosures and written consent before assets can be re-used or rehypothecated.

What are SFTs?

An SFT consists of any transaction that uses assets belonging to a counterparty to generate financing means. Thus, SFTs comprise:

(a) repurchase transactions;

(b) securities or commodities lending, securities or commodities borrowing;

(c) any transaction having an equivalent economic effect, in particular a buy/sell-back or sell/buy-back transaction; and

(d) margin lending transaction

What is re-use or rehypothecation?

Re-use or rehypothecation allows financial counterparties to use assets that have been given to them by clients or counterparties as collateral for their own purposes, such as to secure their own borrowing. Where rehypothecation takes place, the ownership of the relevant asset is transferred to the financial counterparty and replaced with a contractual claim to the return of an equivalent asset. This means that in the event of the financial counterparty's insolvency, the client or counterparty will be an unsecured creditor of the financial counterparty in relation to its claim for equivalent assets.

In practice, the same asset can be used to create multiple obligations and, according to the Commission, this amplified leverage and the uncertainty surrounding the extent to which assets have been reused can create financial stability risks.

The SFT Regulation applies only to the reuse of financial instruments, not cash.

To whom will the SFT Regulation apply?

The SFT Regulation will apply to:

(i) a counterparty to an SFT that is:

(a) an EU entity (i.e. established in the EU)

(b) an EU entity's non-EU branch; and

(c) a non-EU entity if the SFT is effected by an EU branch of that non-EU entity;

(ii) UCITs managers;

(iii) AIFMs; and

(iv) a counterparty engaging in rehypothecation that is:

(a) an EU entity

(b) an EU entity's non-EU branch; and

(c) a non-EU entity if the rehypothecation is effected by an EU branch of that non-EU entity.

For the purposes of the SFT Regulation, a 'counterparty' includes:

(i) financial counterparties (as defined in Article 2(8) of EMIR) e.g. MiFID investment firms, UCITS funds and their managers and AIFs managed by AIFMs. In the case of UCITS and AIFs, the responsibility for reporting is placed on the fund manager;

(ii) non-financial counterparties (as defined in Article 2(9) of EMIR) i.e. only those nonfinancial counterparties whose transactions exceed a certain threshold. Thus, small and medium enterprises below the threshold (namely where the non-financial counterparty does not exceed at least two of the thresholds of: (i) a balance sheet total of €20 million; (ii) €40 million net turnover; or (iii) 250 employees on average during the financial year) will not have to report their transactions with financial entities themselves; these transactions will be reported by their financial counterparty; and

(iii) central counterparties (CCPs).


The SFT Regulation will not apply to members of the European System of Central Banks (ESCB), EU public bodies charged with, or intervening in, the management of public debt or the Bank for International Settlements (BIS).

Reporting requirements

Counterparties to an SFT will be obliged to report details of each SFT to trade repositories, and, as under EMIR, this information will be centrally stored and will be directly accessible to ESMA, the ESCB and the European Systemic Risk Board for identification and monitoring of financial stability purposes.

Counterparties are required to:

(i) report details of each SFT to a trade repository no later than the working day following the conclusion, modification or termination of a transaction; and

(ii) keep a record of each SFT for at least five years following the termination of the transaction.

In accordance with Article 33, investment firms are required to report SFTs to a trade repository with effect from 12 months after the entry into force of the SFT reporting RTS, UCITS managers and AIFMs with effect from 18 months and non-financial counterparties with effect from 21 months of such date.

Rehypothecation requirements

The SFT Regulation requires the following conditions to be met before a counterparty has the right to rehypothecate:

(a) it must disclose to the providing party in writing the risks that may be involved in the providing party granting its consent to the re-use of collateral, particularly in the event of default of the counterparty; and

(b) the providing counterparty must grant its prior express written consent to the re-use of its collateral.

Upon the granting of such express consent, the counterparty may only exercise its right of rehypothecation if the re-use is undertaken in accordance with the terms specified in the written agreement and the relevant assets are transferred from the account of the providing party to that of the counterparty.

Counterparties are required to comply with the rehypothecation requirements with effect from 6 months after the SFT Regulation's entry into force.

UCITS and AIFM disclosure Requirements

The SFT Regulation imposes additional obligations upon UCITS management companies and AIFMs to report certain specified information to investors about their use of SFTs and other financing structures, such as total return swaps to enable such investors to become aware of the risks associated with their use. These disclosure requirements relate closely to those required under the UCITS Directives and the AIFMD, namely the provision of pre-investment and periodical information to investors. The form of both pre-investment and periodical disclosures are set out in the SFT Regulation.

Pre-investment disclosure

The following information must be included in the prospectus of the UCITS or AIF:

  • a general description of the SFTs and total return swaps used by the fund and the rationale for their use
  • the type of assets, the expected proportion and the maximum proportion of AUM that can be subject to them

The pre-investment disclosure requirements come into effect 18 months after the SFT Regulation's entry into force for UCITS and AIFs that are already constituted by 12 January 2016.

Periodical disclosure

The use of SFTs and total return swaps must be disclosed by the UCITS manager in their halfyearly and annual investor reports (as required under the UCITS Directives) and by AIFMs in their annual investor report (as required under the AIFMD).

The periodical disclosure requirements come into effect 12 months after the SFT Regulation's entry into force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.