As regulations in the trade reporting landscape continue to change, internal operations, compliance, and information technology teams (and systems) face the pressure to ensure successful reporting continues. Many firms have a fragmented, and therefore inefficient, technical architecture in place for managing the data required for trade reporting. Common issues include compromised control frameworks; siloed, duplicated, or non-strategic processes; sourcing the relevant regulatory expertise; and the never-ending challenge of reconciling multiple data sets and managing technology upgrades to meet regulatory changes. All of this is prone to risk and error, both which come with high remediation costs and potential fines. The cost of owning, operating, and maintaining internal trade reporting systems is expensive, can add additional risk, and derives limited competitive advantage.
The Trade spoke with Val Wotton, DTCC’s Managing Director, Product Development and Strategy of Repository and Derivatives Services, to learn more about how DTCC helps firms in the face of a rapidly evolving global trade reporting landscape.
Related: The Journey to Global Data Harmonization in Trade Reporting
Compliance Challenges
Among the regulations resulting from the 2008 financial crisis were reporting mandates for derivatives transactions. Jurisdictions rolled out their respective rules at different times and without close coordination. The result: many differences in reporting formats, trade data elements and other parameters, which are now triggering a new round of rule revisions designed to increase standardization across jurisdictions.
“This post-crisis global regulatory surge and ongoing failure to harmonize rules from one reporting regime to another has necessitated continual modifications to firms’ technology platforms,” says Wotton. “After a decade of patches to accommodate one new rule or update after another, the trade processing and reporting infrastructure in most firms today is duplicative and inefficient.”
For firms that have developed their own pre and post-reporting capabilities, the upcoming rewrites of derivatives rules – which will include adoption of Common Data Elements (CDE) and Unique Product Identifiers (UPI) for reporting – will spur yet more updates to their infrastructure and further burden already-stressed capacity and functionality.
Evolving regulatory provisions will also necessitate ongoing refinements to firms’ data management and messaging processes.
For example, if, as expected, regulators adopt the ISO 20022 message scheme for derivatives CDE, trade, collateral and valuation data will need to be normalized to meet this new standard – tedious work that many firms are likely to need help in completing.
“The strain on internal staff, processes and platforms caused by ever changing regulations have led some firms to turn to one or more third-party solutions providers to deliver discrete pre and post-reporting functionality,” describes Wotton. “But the result can be a patchwork of solutions that are not integrated with one another and require multiple connections,” he continues.
Furthermore, use of solutions from different providers can deprive firms of the comprehensive, cross-jurisdictional regulatory coverage they need to manage pre and post-reporting activities for all reporting regimes, each of which has varying rules. Without a unified solution, firms could face increased compliance risk and cost.
Addressing Pre and Post Reporting Needs
Given the trade reporting challenges ahead – including the continuing, regime-specific changes to derivatives mandates, the complexity of Securities Financing Transactions Regulation (SFTR) reporting and the sheer difficulty of managing trade reporting across multiple asset classes and jurisdictions – a unified, single-vendor suite of services can help firms mitigate risk, enhance operational efficiencies, and reduce costs associated with regulatory reporting compliance. One such solution is DTCC Report Hub.
Launched in early 2020 and expanded in December 2020 with DTCC’s acquisition of the Compliance Management Reporting System platform (CMRS) from Publicis Sapient, DTCC Report Hub enables firms to manage their global derivatives, Markets in Financial Instruments Directive II (MiFID II) and SFTR pre and post trade reporting requirements with a single vendor solution.
For firms that have solutions developed in-house, a move to DTCC Report Hub frees up staggering amounts of staff time and internal resources. DTCC Report Hub’s single-vendor model provides the consistent, streamlined functionality that is generally missing when firms utilize multiple vendors.
Wotton explains that “The DTCC Report Hub platform is a game changer for pre and post-trade reporting services. By delivering a unified, single-vendor pre and post reporting platform, firms can consolidate reporting activities for multiple jurisdictions – US, UK, Europe, Canada, Israel, Singapore, Australia, and Hong Kong – and be prepared for forthcoming rule additions and changes.” This breadth of coverage can help firms maximize their operational efficiencies and compliance-risk mitigation, reduce costs and free-up staff to focus on other priorities. With its extensive suite of pre-reporting services, DTCC Report Hub streamlines the complex workflows required to prepare trade, collateral, and valuation data for submission to TRs or ARMs. Starting with data translation and enrichment – including to accommodate the ISO 20022 messaging scheme – this suite provides jurisdictional eligibility analysis, a customizable rules engine and advanced exception management and reprocessing.
Closing the Reporting Loop
In addition to interfacing with TRs and ARMs to facilitate trade submissions, DTCC Report Hub also delivers the post-reporting functionality. Its reconciliation tool applies reporting completeness and accuracy checks on TR end-of-day reports against a client’ s internal systems. DTCC Report Hub can also provide extensive data analytics to help firms better manage reporting completeness, accuracy, and timeliness.
Even with a solution like DTCC Report Hub, firms will still need to keep pace with global regulatory output by having up-to-date reporting processes, controls, systems, and governance. Firms that have repeatedly modified their infrastructure in response to new and revised mandates may need a top-to-bottom overhaul if they are to manage regulatory reporting risk in a cost-efficient manner. DTCC Consulting Services experts can help firms analyze their infrastructure performance and data quality and assist them in evaluating whether certain enhancements or redesigns are warranted.
“The trade reporting landscape continues to evolve, and we are committed to continuously improving, innovating, and reimagining how to best serve our clients as we help them comply with the various regulations that continue to challenge reporting firms’ operations,” says Wotton.
This article originally appeared in the Winter 2021 issue of The TRADE Magazine on January 7, 2022.