Non-financial Counterparties in Securities Financing Transactions

On the 19th October 2020, the Malta Financial Services Authority (“MFSA”) issued a circular addressed to all market participants and entities which undertake Securities Financing Transactions (“SFTs”) falling under the Securities Financing Transactions Regulation (“SFTR”).

Reporting Requirement

Non-Financial Counterparties are obliged by the MFSA to report SFTs to a Trade Repository registered by the European Securities and Markets Authority, in accordance with Article 4 of the SFTR. Reporting obligations for non-financial counterparties commence to be applicable from the 11th January 2021.

Both counterparties to an SFT are to report the details of any completed, modified or terminated SFT to a registered trade repository and records of such SFTs must be retained for a minimum period of five years following the termination of the transaction.

The following definitions apply for an SFT to fall within the scope of the SFTR:

  • A repurchase transaction;
  • Securities or commodities lending and securities or commodities borrowing;
  • A buy-sell back transaction or sell-buy transaction;
  • A margin lending transaction; or
  • Liquidity swaps and collateral swaps not falling under the definition of derivative contracts under EMIR.

Classification under the SFTR

An entity that does not fall within the definition of ‘financial counterparties’ and is an undertaking established in the EU or in a third country is defined as a Non-Financial Counterparty (“NFC”).

An entity will be defined as a Small Medium Enterprise NFC if it does not exceed the limits of at least two of the following criteria:

  • Balance sheet total: €20,000,000
  • Net turnover: €40,000,000
  • Average number of employees during the financial year: 250

Entities are requested by the MFSA to determine whether they offer services to any entity falling within the definition of NFC for the purposes of the SFTR. If this is the case, the relevant entity is asked to cooperate with the non-financial entity in order to complete and submit Annex 1 provided by the MFSA in the circular issued.

Please do not hesitate to contact us should you require any further information on the reporting obligations pertinent to NFCs.