2022 and 2023 are shaping up to be very busy years for regulatory change globally, with the main themes focusing on increasing Data Quality and ensuring convergance of standards across regulations.
With Regulations from EMIR in the EU and the UK to ASIC and MAS in APAC by way of a CFTC rewrite in the US, the regulators have or are planning on being engaged in major changes to flagship regulations.
It is undoubtedly true that the desire to accommodate global standards, primarily driven by The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO), has delayed the delivery of some of these changes (perhaps COVID may also have played a small part). It is all now all ‘Engines Go’ and the impact to the Market Participant is that we will now concertina some fundamental and wide reaching changes into a shorter space of time, this will fall disproportinally hard on those who have a global trading presence.
The regulators are staying with the 18 month implementation timetables that have become industry standard but it is also key to note that there will be a lot to do in that 18 months and planning and preparation are key.
Global Regulatory Timeline
What is planned and by when
Focus on EMIR REFIT
As you can see from the timeline above, and at time of writing EMIR REFIT (EU And UK) in particular is not yet set in stone, with an implementation date, being probably Q4 2023 or Q1 2024.
In Europe changes to SFTR have been made to the schema (31 Jan) and the UK will follow suit on the 11 April, so a 3 month period of divergence, but with strong and sensible alignement of schemas this will only be a burden for a relatively short period, and only time will tell if this the case for EMIR REFIT, in both timetable and convergence of standards.
The major change we are all waiting for is the for the publication in the European journal of EMIR REFIT RTS, so we know what we have to do and by when we have to have it done, as stated previously this is expected in Q2 2022 giving us an implementation date of Q4 2023. With the UK following with its own version around the same time, we all hope.
What are the major themes of EMIR REFIT ?
There are 5 major themes in the technical standards are;
- Alignment with international standards – in particular the global guidance developed by CPMI-IOSCO on the definition, format and usage of key OTC derivatives data elements reported to TRs, including the Unique Transaction Identifier (UTI), the Unique Product Identifier (UPI) and other critical data elements. The introduction of these changes into the EU regulatory framework will foster global data harmonisation and will facilitate compliance for those entities that are subject to derivative reporting requirements in non-EU jurisdiction(s).
- End-to-end reporting in ISO 20022 XML – ESMA proposes that XML schemas developed in line with ISO 20022 methodology are used not only for the communication between the TRs and authorities (as is the case now), but also for reporting from TR counterparties, similar to the requirements in place under SFTR. A fully standardised format for reporting will eliminate the risk of discrepancies due to inconsistent data. While end-to-end reporting in ISO 20022 XML is expected to further enhance data quality and consistency, by reducing the need for data cleaning/normalisation and facilitate their exploitation for various supervisory and/or economic analysis.
- Harmonised data quality requirements across TRs – another cornerstone of the technical standards relates to the enhanced and harmonised data quality requirements for data validation and data reconciliation processes, that take place at the TRs once derivatives are reported to them.
- Simplified rules for extension of registration from SFTR to EMIR – ESMA clarifies the relevant documentation to be provided by TRs willing to extend their registration from SFTR to EMIR in line with the existing requirements for extension from EMIR to SFTR; and
- Standardised process for data access – ESMA includes references to standardise the type of information and the timeline for setting up data access for authorities.
What’s the impact?
It is the volume and breadth of the changes that are key here, it is in a way ‘all change’ and that will be the challenge, by way of example and by no means exhaustive, here are a few of the major changes that will need to be accommodated
- An increase in fields from 129 to 203, including more granular Actions and Events, requiring consideration of sequencing and linkages
- Most existing fields will be amended (to align with CPMI-IOSCO)
- Tricky new fields introduced, where a deeper understanding of a counterparties trading may be required (prior UTI)
- Impacts to delegated reporting, including the removal of key permissioning/ visibility attributes
- Tighter controls required relating to data quality verification, including time limits to correct errors and clear requirement to correct each inaccurate submission
- All reporting to be in XML (ISO 20022), no more CSV and direct upload to the TRs.
- Changes to collateral reporting
- Introduction of new Identifiers, i.e., Unique Product Identifiers (UPIs)
These are major changes required across a number of areas, internal systems, processes, data management and external delivery of data.
In addition, will the UK version diverge or harmonise, in both content and implementation timelines?
A partner of deltaconX, Kaizen Reporting, asked the question recently in a webinar to its clients and prospects.
What is the biggest challenge when it comes to Reg Reporting in 2022/23?
|Key Area of concern||% of responders|
|Keeping on top of regulatory change||23|
We suspect that whilst this may be a relatively small sample size, from conversations across the market this would seem to be generally representative.
18 months is not a long time when you look at what needs to be done and whilst the starting gun has not yet been fired, we do know enough to start planning if you haven’t already.
Therefore get ready now, and if you require any support please do not hesitate to get in touch with us.