Regulatory reforms are headed in the right direction to provide greater transparency in an otherwise opaque derivatives global market. But now, 12 years after the regulatory measures were determined at the G20 Summit, are we able to generate valuable insights from the reported data? Unfortunately, not quite.
This gap explains the influx of revisions to trade reporting rules that will be enforced globally in the next few years to ensure consistency and standardization in data collection and reporting format to yield data, which provides insightful analysis for risk identification and monitoring.
Related: The Journey to Global Data Harmonization in Trade Reporting
Currently, regulators in the Asia Pacific (APAC) region, which includes the Australian Securities and Investments Commission (ASIC), Monetary Authority of Singapore (MAS) and Hong Kong Monetary Authority (HKMA), are deliberating on the data sets including identifiers and other trade reporting elements with an aim to align with other jurisdictions’ regulatory rewrites and produce a more consistent data set to better detect interconnected risk.
To help firms navigate these proposed changes, I participated in a virtual event with Nicola Barry, ANZ Bank Head of Regulatory Management; Bruce Perry, Barclays Managing Director, Head of Operations, Asia Pacific; and Xiangjing Ng, ISDA Director, Public Policy, Asia Pacific.
If you missed the session, you can click here to register to watch the replay. A summary of what was discussed is below:
Aligning Implementation Date
As the go-live date of the regulatory rewrites varies across jurisdictions globally – between 2022 and 2024 – firms will have to adjust their reporting processes and accommodate differing implementation timelines given that OTC derivatives trades are often reportable in multiple jurisdictions.
As critical data elements (CDE) and identifiers including unique product identifiers (UPIs), unique transaction identifiers (UTIs) and legal entity identifiers (LEIs) – recommended by CPMI IOSCO1 working group on harmonization (Harmonization Group) – are increasingly being adopted in the regulatory revisions to enable global aggregation and analysis of reported data, there should be a synchronized path to implement these standards globally. This will reduce confusion and unnecessary costs to reporting entities. While the preferred option is to go for a single implementation vis-à-vis a staggered launch, regulatory bodies in APAC often take a concerted effort when administering regulatory changes, bringing about greater alignment and synergy in the region.
Preparing for Regulatory Updates
In the coming months, firms will have to review changes stipulated by major regimes worldwide and work within a squeezed timeframe. Our panel recommended that firms first undertake a gap analysis on the reportable data and new trade data elements to be adopted. At the cross jurisdictional level, it needs to be determined if data definitions are aligned and if they follow the CPMI IOSCO guidance. If there are any doubts in the interpretation of definitions, firms should seek clarity through industry working groups to ensure the correct data capture.
We also agreed that counterparties should be educated on new data elements like UPI, UTI and LEI that will be included in the revisions. Regulators in APAC presently allowed the use of alternative identifiers such as AVOX ID or SWIFT BIC code in place of LEI in a transaction.
To meet the new regulatory demands, time is, of course, needed to enhance existing systems or overhaul processes – onboarding, trade booking, trade confirmation, margining through data reconciliation. As the key driver for the regulatory updates is data quality, internal controls must be put in place or enhanced to validate data accuracy. We believe that it is the right time to holistically evaluate and establish a scalable framework for ongoing compliance.
Integrating Different Dots
While the regulatory revisions proposed by the respective regulatory bodies represent a remarkable improvement in the consistency of data to be reported, DTCC’s in-depth analysis revealed that there are cross jurisdictional deviations on the adoption of CDEs, impeding global aggregation as a result.
In the absence of a completely harmonized set of reporting data, it is critical that firms look to design and build a flexible solution that can accommodate different data requirements – leveraging data analytics tools to mitigate operational risk.
Managing an Evolving Regulatory Landscape
Finally, it was stressed that we need to invest in data to draw value from data-based insights. Data will inform the way forward – getting upstream data right will ensure the correct course of action or decision be taken downstream. By integrating data with the right tools, firms will not only be able to detect, correct and prevent potential issues but will also be able to produce accurate and clean data to strategically meet future trade reporting requirements.
1 CPMI IOSCO1: Committee on Payments and Market Infrastructures (CPMI) and the Board of the International Organization of Securities Commissions (IOSCO)