The Financial Stability Board has announced delays to the implementation of minimum haircut standards for non-centrally cleared securities financing transactions. SFTs involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. In 2015, the FSB published its regulatory framework and recommendations for haircuts on uncleared SFTs, which included timelines for the implementation of the recommendations by FSB member jurisdictions. The deadline for implementation was extended in July 2019 by the FSB because of the delay to implementation of the Basel III framework, including the minimum haircut standards on bank-to-non-bank SFTs, which was postponed to January 2022. In March 2020, a further delay to the implementation of the Basel framework to 2023 was announced, with the objective of relieving the operational burden on banks impacted by the coronavirus pandemic. The FSB has decided to delay its framework again because it is expected to be implemented by many jurisdictions through the Basel III framework. The FSB's revised implementation dates are:
- January 2023: recommendation 14 - the framework of numerical haircut floors (that original deadline of end of 2018 was revised in July 2019 to January 2022);
- January 2025: recommendation 15 - framework of numerical haircut floors on non-bank-to-non-bank transactions (the original deadline of end of 2018 was revised in July 2019 to January 2024);
- January 2022: recommendation 16 - conducting an initial assessment of the need and the implementation approach for introducing the framework of numerical haircut floors on non-bank-to-non-bank transactions (the original deadline of end of 2016 was revised in July 2019 to January 2021);
- January 2024 onwards: recommendation 17 - FSB assessment of the implementation of the framework of numerical haircut floors, including considering whether to amend the framework and its scope and levels (the original deadline of end of 2018 onwards was revised in July 2019 to January 2023); and
- January 2023: recommendation 18 - FSB to establish monitoring process and to review the national implementation of the framework of numerical haircut floors (the review to be conducted in 2023) (the original deadline of end of 2018 was revised in July 2019 to January 2022).
The EU SFTR requires, among other things, that all SFTs executed by EU persons be reported to EU-recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to both Financial Counterparties and Non-Financial Counterparties, subject to exceptions for central banks and similar bodies and will be phased in according to type of entity. Following regulatory forbearance granted by the European Securities and Markets Authority in response to COVID-19, the revised dates are:
- banks and investment firms (originally April 13, 2020), CCPs and central securities depositories from July 13, 2020;
- other FCs from October 12, 2020; and
- NFCs from January 11, 2021.
In October 2017, the European Commission assessed steps taken to implement the FSB's standards and came to the view that the potential introduction of numerical haircut floors should be evaluated once detailed data on the SFT markets is available, in addition to considering the steps taken in other jurisdictions because the introduction of any numerical haircut floors should be globally coordinated. In July 2019, the European Banking Authority delivered advice on the implementation of Basel III in the EU and re-affirmed the EU's cautious approach to implementing numerical haircut floors.