Andrew Douglas, DTCC Managing Director of Government Relations for Europe & Asia
As jurisdictions around the globe continue to implement G20 commitments designed to improve the safety and transparency of the global over-the-counter (OTC) derivatives markets, it remains unclear whether policymakers will succeed in coordinating their efforts into a harmonised system of cross-border oversight.
The recent go-live of derivatives trade reporting under EMIR offers a timely example of cross-border regulatory divergence. Despite common commitments and the widespread belief that reporting to trade repositories can meaningfully improve the transparency of the derivatives marketplace, there remain considerable differences at the most basic levels of this obligation across jurisdictions.
For example, in the EU all derivatives – OTC and exchange-traded – must be reported to a trade repository by both counterparties to the trade on a T+1 basis. Meanwhile, US rules dictate that reporting take place in real-time, though the obligation applies only to OTC trades and only one counterparty is required to report. These are fundamental differences that will inevitably complicate efforts to aggregate derivatives data for the purpose of generating a comprehensive view of global exposures.
The regulatory divergence seen in global trade reporting regimes can in part be attributed to the flexible approach adopted by policymakers seeking to account for local market conditions. But this flexibility, ironically adopted in the name of achieving regulatory consistency globally, has nevertheless added to the list of cross-border challenges confronting policymakers today.
A common approach to resolving these differences is essential and progress has unquestionably been made thanks to ongoing regulatory dialogue. But until policymakers can act in a more collegiate fashion, overcoming sentiments of regulatory competition and the challenges posed by the lack of a common regulatory lexicon, the success of the G20 commitments will remain in doubt.