This is our first blog in this new year 2021.
Although we all try to look into the future rather than looking at the past, some of the challenges that have started in 2020 will still require our attention in 2021. We would therefore like to make a short recap on what kept us busy during the last months.
First, we all agree that 2020 was a very challenging year for all of us and especially for the financial industry. Please see below some of the challenges we faced in 2020:
The COVID-19 pandemic has hit the entire planet. Although other sectors like health care, elderly care, catering, tourism, etc. were certainly hit more heavily, at least immediately, also the financial sector had quite some challenges to overcome. Social distancing required entities in the financial sector to rethink their remote working policies. Home office in a sector that is certainly one of the most regulated when it comes to data protection, fraud prevention, anti-money laundering, etc. was absolutely uncommon, but all of a sudden it became mandatory for the continuity of the business. At the same time capital markets were getting highly volatile which required the full attention to prevent high losses.
SFTR reporting is certainly one of the most complex reporting regimes that ever entered into force, went live during a time in which most institutions still tried to find solutions for the new “way of working”. Although ESMA granted a 3 months’ delay to the first wave of SFTR impacted market participants, it was still quite challenging for those entities to comply with a highly complex reporting regime.
ESMA published various public consultations, e.g. on EMIR REFIT and MiFIR. From the EMIR REFIT Consultation, attentive readers could already expect significant changes for the EMIR reporting regime, which have been confirmed by the publication of the “DRAFT TECHNICAL STANDARDS UNDER EMIR REFIT” by ESMA on December 17th 2020.
Some major market participants have decided to step out of the reporting business (CME ETR) or have been sold towards the end of the year (RegS from Deutsche Börse has been sold to MarketAxess). Clients of these infrastructures had only very short time to find an alternative provider as those entities simply stopped their service or had very short time to implement different logics, e.g. MiFIR UK reporting was not supported anymore by RegS as of beginning of this year.
BREXIT: Although the UK Government and the European Union have found a last-minute agreement to avoid a complete chaos, this deal does not contain any financial services agreement, which had also a huge impact on the reporting flows. New reporting regimes have entered into force with a new supervisory entity, and with slight differences to the European ones. New entities to whom the reports must be sent, different reporting logics were required to report different transactions under different or multiple regimes, etc.
We developed UK reporting modules in a couple of weeks only for our clients to help them complying with their reporting requirements. However, this was anything but trivial as the different reporting regimes have different requirements. While EMIR reporting does not recognize branches, SFTR and MIFIR do so, which lead to dual sided reporting scenarios for the last ones, while for EMIR a one-sided reporting logic needs to be implemented. But also, EMIR has challenges especially when it comes to delegated reporting.
For example, Small Non-Financial Counterparties (NFC-) that have traded with an EU28 Financial Counterparty (FC) were exempt from the EMIR reporting since June 2020. If the counterparty is not subject to the same jurisdiction anymore (due to the UK leaving the EU) since January 1st, 2021 these NFC- might be legally forced to restart reporting on their own after a six months’ break. Most Financial Counterparties offer “voluntary” delegation for those NFCs although the legal obligation has ceased after BREXIT. This means however, that they need to connect to a second TR and that they must implement a logic to split both legs between those two reporting regimes.
This is certainly only a fraction of the challenges that market participants had to face in 2020 and with a clear focus on Europe and regulatory reporting. If we would try to include all global challenges of the year 2020 this would become a fairly thick book rather than an article only.
Some of these challenges will still require our attention in 2021 but some of them have already been successfully overcome during 2020. It has not always been easy, but with our partners and clients we have been able to always meet the targets successfully. So, we would like to thank the partners and clients again for the trust they have put in us and the vital cooperation we had during the difficult year 2020.
In our next blog we will focus on the challenges that need to be tackled during this new year and how we can help the market participants to overcome them successfully.
deltaconX is a full-service provider offering a unique software & support package catering for European financial-, energy- and commodity trading organizations enabling them to meet their various regulatory reporting and market surveillance obligations such as EMIR EU & UK, MiFIR/MiFID II EU & UK, SFTR EU and UK, FinfraG and REMIT within a unified platform. Manual efforts and the total costs of ownership are therefore reduced to a minimum.
For more information visit us at www.deltaconX.com