FSB extends implementation timelines for securities financing transactions

The Financial Stability Board (FSB) announced on the 7th September additional guidance to the regulatory framework for haircuts on non-centrally cleared securities financing transactions (SFTs). Specifically, extensions to the implementation timelines were added to the original report via Annex 3 and 4, to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of COVID-19.

SFTs, such as repurchase agreements, securities lending, or buy-sell back transactions, allow investors to use owned assets to secure funding for their activities. However, these transactions can be used to take on leverage and liquidity mismatched exposures, thus risking financial stability. Due to the difficulties for regulators and supervisors to assess risk in the area of securities financing during the Great Financial Crisis, the FSB developed 18 policy recommendations to address financial stability risks that arise from SFTs.

The FSB framework for numerical haircut floors for bank-to-non-bank transactions is expected to be implemented through the Basel III framework in many jurisdictions. Due to the decision the Group of Central Bank Governors and Heads of Supervision to defer the implementation of the Basel III framework by one year to January 2023, the FSB has decided to also extend the implementation dates by one year for its policy recommendations related to minimum haircut standards for non-centrally cleared SFTs. This is in line with the re-prioritisation of the FSB’s work in light of the COVID-19 pandemic and will give market participants more time to prepare for the implementation of the regulatory framework.

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