Lynn Strongin Dodds looks at how APAC’s main financial service hubs are grappling with the challenges in complying with the revisions to the OTC derivatives reporting rules.
The global financial crisis may be 15 years ago, but the repercussions are still reverberating with a constant stream of regulations, reviews and rewrites. In the past, each jurisdiction carved out its own path but today, but in the current wave, standardisation is the name of the game. This is easier said than done especially in a heterogenous region such as Asia Pacific.
As Alan McIntyre, North America Reporting director for Kaizen Reporting, notes, the aim is to harmonise data fields and align reporting jurisdictions more closely, but there will be nuances. “The different regulators will have different interpretations that firms will have to be aware of,” he adds.
They all knew though that changes were on the horizon. The Committee on Payments and Market Infrastructures (CPMI) and the International Organisation of Securities Commissions (IOSCO) kicked off the process with its first consultation paper in 2015, followed three years later by the CPMI-IOSCO’s Harmonisation working group paper.
Their efforts culminated in global technical guidance on the definition, format and usage of key OTC derivatives data elements relating to counterparties and beneficiaries as well as those covering clearing, trading, confirmation and settlement to be reported to trade repositories. This included a host of acronyms such as Unique Transaction Identifier (UTI), Unique Product Identifier (UPI) and over 100 other Critical Data Elements (CDE).
USA, UK and EU
Regulators are working to different deadlines and for some, the finer details are still being debated. The US’ Commodity Futures Trading Commission (CFTC) has started the ball rolling with a two-phase approach. The first was introduced last December while the second will take effect by 2024. Meanwhile, Europe’s EMIR Refit opted for a single day – 29 April 2024 – as its target date, followed by the UK version on 30 of September 2024.
APAC
In Asia, “regulators are following the global harmonisation plans but there are differences between the countries,” says Priya Kundamal, general manager and head of DTCC Data Repository, Singapore Pte. Ltd, the Singapore-based subsidiary of DTCC’s Global Trade Repository (GTR). “For example, Japan – the first country in APAC to roll out their rewrite on April 1, 2024 – will not include UPI and the Delta data fields but will add them in later phases.”
Australia
The Australian Securities and Investments Commission (ASIC), on the other hand, will cover the full gamut – CDE fields, adoption of UTI and UPI and ISO 20022 XML message schema – all in one go on 21 October 2024.
Kundamal said the third and final ASIC consultation would be released in the second half of 2023, and it is expected to be limited in scope covering topics such as alternative reporting; exclusions around exchange-traded derivatives and reporting by foreign entities trading with Australian wholesale clients.
Singapore
As for the Monetary Authority of Singapore, it is seen to be closely aligned with ASIC rules. “MAS rules adopt the technical guidance published by the CPMI-IOSCO on UTI, UPI and CDE to facilitate the standardisation and harmonisation across international OTC derivatives reporting regimes, as well as the ISO 20022 XML message schema”, says Anthony Xavier, Principal Consultant, Bovill.
Hong Kong
The only outlier in the region is the Hong Kong Monetary Authority (HKMA), which is expected to publish their consultation in the second half of 2023. Kundamal says that the DTCC, together with the industry and International Swaps and Derivatives Association (ISDA) have advocated for at least a 6-month lead time between the Oct 2024 go-live date for ASIC/MAS to the go-live date for the HKMA implementation date.
Technical variations
Aside from different timelines and staging, Kundamal points to a few technical variations. Take amortised swaps where the notional amount changes according to a pre-agreed schedule. “The schedule of the notional amount is expected to be reported upfront for JFSA and ASIC,” she adds. “That means, for example, no updates of the notional amount are expected to be reported when the amortisation happens. However, under MAS, notional is expected to be updated as and when amortisation takes place under MAS reporting.”
Resourcing may be a problem for some
As with all regulations, there are challenges with one of the biggest being around resourcing for such a complicated and technical revision. For example, market participants may agree that replacing the multiple existing CSV submissions with a more standardised XML format will improve efficiency and data quality, but putting in new systems to support these changes takes time and effort.
This is also the case with the amendments required to well established bilateral agreements that cover responsibilities for delegated reporting and UTI sharing. They will need to be updated and agreed upon between counterparties to comply with new UTI waterfall approach for deciding who the UTI generating firm is.
“In the past, the rollouts were more staggered which allowed firms to work on other projects and leverage experience for other markets,” says Kundamal. “That is not the case today and there is not a one-size-fits-all solution. Some firms may address this issue themselves, while others may look at vendor solutions or delegated reporting if they are on the buy side. It depends on the size of the firm and their operational workflows.”
However, the firms that will struggle are likely to be the same as in previous regulatory rollouts. “The large broker dealers who operate in various jurisdictions such as the US, Europe and Asia have internal teams and adequate resources to manage regulatory change,” says Xavier. “It is the small buy and sell-side firms as well as exempt firms with significant derivatives business who will find it difficult. They will likely reach out to service professionals to seek help.
Tim Hartley, EMIR reporting director at Kaizen Reporting, agrees adding it will also depend on the sophistication of the firm. “There are a lot of changes that firms need to take account of and the first thing they need to do is look at the current existing reporting processes to see whether they are fit for purpose. In many ways it is a good excuse to reevaluate what they have. There will be more than one way to do it but the real challenge with overlapping regulations is to ensure that best practice is being applied across the regions.”
Related Reading:
EMIR Refit is Coming: Don’t Underestimate the Scope of the Changes – Derivsource
US Regulatory Roundup 2023: Swap Data Reporting and Digital Assets – Derivsource
UK/Europe Regulatory Roundup 2023: EMIR 3.0, CSDR, DORA, SFDR and CSRD – Derivsource
