Aligning with CFTC Standards: EMIR & UK Refit, ASIC, JSFA and MAS Reporting Rewrite Reforms

Introduction:

The EMIR & UK Refit, ASIC, JSFA, and MAS Reporting Rewrites are part of a broader trend in global derivatives reporting reforms aligning with the CFTC (Commodity Futures Trading Commission) in the United States. This trend indicates that other derivatives reporting frameworks may also follow suit. Here’s a detailed explanation:

Alignment with CFTC's Rewrite

1. Harmonization of Reporting Standards:

The Rewrite and Refits of reporting requirements are aimed to standardize and streamline derivatives reporting. By adopting similar standards, they promote global harmonization of derivatives reporting, making it easier for multinational entities to comply with multiple regulatory regimes.

2. Use of Common Identifiers:

Emphasize using common identifiers such as Unique Trade Identifiers (UTIs) and Unique Product Identifiers (UPIs). This consistency helps ensure that derivatives can be tracked and reported in a standardized manner across different jurisdictions.

3. ISO 20022 Messaging Format:

The shift to the ISO 20022 messaging format for reporting under new and upcoming reporting aligns with the CFTC's efforts to adopt more robust and internationally recognized standards for financial data communication.

4. Expansion of Reporting Fields:

The number of reportable fields shall increase significantly. This necessitates firms to undertake a comprehensive gap analysis and system updates to ensure compliance.

Implications for Other Jurisdictions

1. Global Convergence:

The alignment by major regulatory bodies towards harmonized reporting standards indicates a trend towards global convergence in derivatives reporting.

2. Regulatory Cooperation:

Increased cooperation among global regulators may lead to further alignment of reporting requirements. This cooperation helps to mitigate systemic risks in the derivatives market by providing regulators with more accurate and comparable data.

3. Anticipated Reforms:

Other jurisdictions, observing the benefits of these reforms, may implement similar changes to their derivatives reporting frameworks. This could include adopting common identifiers, enhancing data quality, and simplifying reporting processes.

4. Market Participant Preparedness:

Firms that operate in multiple jurisdictions are likely to benefit from these harmonized standards, as they reduce the complexity and cost of compliance. These firms are already preparing for similar changes in other regions, anticipating that other regulatory bodies might follow the example set by the CFTC, ASIC, CSA, ESMA, FCA, JSFA, and MAS.

Operational and Change Management Considerations:

Beyond the new reporting requirements, the effective implementation of change management is crucial to maintaining an efficient and compliant environment. Financial institutions and market participants must evaluate their current operations to ensure they can successfully comply with the new requirements, including reconciliations. Entities managing their own reconciliations may need to upgrade their systems and processes to align with the new standards. Those who outsource their reconciliations should verify that their service providers are informed about and equipped to support the new requirements.

Trade Repositories and Lifecycle Events:

Trade repositories will now account for lifecycle events based on the logical sequence derived from the 'Event date,' 'Action type,' and 'Event type' fields. The Trade State report will be updated based on the latest information for a given derivative as indicated by the 'Event date' field.

Future Outlook: EMIR Refit Phase 2:

Scheduled for 2026, EMIR Refit Phase 2 will introduce 66 additional reconcilable fields and a new Valuation Reconciliation Status field that requires counterparties to reconcile Mark-to-Market Valuations. It is imperative for participants to ensure they can quantify and meet these upcoming requirements, as well as any future updates.

European Market Infrastructure Regulation (EMIR):

The European Market Infrastructure Regulation (EMIR) was established to enhance the stability of derivative markets throughout Europe. EMIR requires entities involved in derivative transactions to report these trades to Trade Repositories. An essential aspect of EMIR is reconciling derivative transactions between an investment vehicle’s records and the Trade Repositories’ data, ensuring comprehensive, accurate, and timely reporting of all derivative contracts.

EMIR REFIT (EMIR REgulatory FITness Program):

The EMIR Regulatory Fitness and Performance Program (Refit) is an amendment to the regulation that took effect in the European Union on 29 April 2024 and will be implemented in the UK on 30 September 2024. The Refit aims to enhance transparency, simplify reporting, and improve data quality for both new and existing derivatives transactions.

Key Changes Introduced by EMIR Refit:

1. Expansion of Reporting Fields:

The number of reportable fields has increased significantly from 129 to 203. This necessitates firms to undertake a comprehensive gap analysis and system updates to ensure compliance.

2. Revised Field Formats and Computational Rules:

41 fields have a new reporting format, and 33 fields have updated computational rules. These changes require meticulous attention to detail to ensure accurate reporting.

3. Adoption of ISO 20022 Messaging Format:

The transition to ISO 20022, a standard for financial data communication, aligns EMIR reporting with other global regulatory frameworks, facilitating more consistent and streamlined data exchange.

4. Implementation of Unique Identifiers:

The use of Unique Product Identifiers (UPIs), Unique Trade Identifiers (UTIs), and Legal Entity Identifiers (LEIs) enhances the precision and traceability of reported transactions.

5. Enhanced Reconciliation Requirements:

There are additional responsibilities for addressing reporting breaches, errors, or omissions. This includes new reconciliation requirements to ensure data integrity.

Key Changes Introduced by MAS Reporting Rewrite:

1. Standardization of Reporting Formats:

Adoption of standardized reporting formats and fields, similar to the ISO 20022 messaging format, to ensure consistency and accuracy in reported data.

2. Use of Unique Identifiers:

Implementation of UTIs and UPIs to facilitate the tracking and reporting of derivatives transactions.

3. Enhanced Data Quality Measures:

Introduction of stringent data quality checks and reconciliation processes to improve the accuracy and reliability of reported information.

Final Thoughts

The EMIR & UK Refit, ASIC, JSFA, and MAS Rewrites follow the path laid out by the CFTC's rewrite implementation. This trend reflects a broader movement towards global standardization in derivatives reporting. As major regulatory bodies align their reporting requirements, it is likely that other jurisdictions will adopt similar reforms, leading to a more consistent and efficient global regulatory environment for derivatives markets

Disclaimer

The information provided in this discussion is for informational purposes only and does not constitute legal, financial, or professional advice. Please refer to the full regulatory texts and guidelines for detailed information and consult with a qualified professional for specific advice tailored to your situation

.