FSB Defers Haircut Standards for Securities Financing Transactions

​The extensions will help to ease operational burdens on banks, broker-dealers and regulators, allowing them to focus on Covid-19 related priorities.

The FSB (Financial Stability Board) extended the timelines for the implementation of minimum haircut standards for non-centrally cleared SFTs (securities financing transaction).

The standards were published in August 2013 and updated in November 2015 to address concerns that SFTs such as securities lending and repo agreements can be used to take on leverage as well as create maturity and liquidity mismatched exposures, posing risks to financial stability.

It sets out qualitative standards for the methodologies used to calculate haircuts on the collateral received for securities financing, as well as a framework of numerical haircut floors that will apply to non-centrally cleared SFTs in which financing against collateral other than government securities is provided to non-banks (broker-dealers).

In March, the GHOS (Group of Central Bank Governors and Heads of Supervision) – the oversight body of the BCBS (Basel Committee on Banking Supervision) – deferred the implementation of the Basel III framework by one year to January 2023.

As the numerical haircut floors for bank-to-non-bank transactions is expected to be implemented through the Basel III framework in many jurisdictions, the FSB has decided to also extend the implementation dates of the minimum haircut standards for SFTs by one year.

For bank-to-non-bank transactions, the updated implementation date is now January 2023 (instead of January 2022).

for non-bank-to-non-bank transactions, the updated implementation date is January 2025 (instead of January 2024).

The extensions will help to ease operational burdens on market participants and authorities, and thereby assist them in focusing on priorities from the impact of Covid-19, the FSB said.