RegTech Intelligence

ESMA’s New Data Strategy: Leading the Way in Global Capital Markets Transparency

The next five years are shaping up to be the most strategic period of regulatory engagement on industry data since the financial crisis.

ESMA’s new 5 year data strategy illuminates a well thought through path to achieving real transparency though technology-enabled data hubs that cover the full scope of current and new capital markets activity.

With the Common Domain Model now powering Digital Regulatory Reporting, we have a clear path through the jungle of expensive data if the industry can move towards opensource standards.

EU chief data officers have a fantastic opportunity to work collaboratively with their UK and EU counterparts to take a global, strategic approach to regulatory reporting that will change reporting game forever.

EU Mission upgrade

In Q123, the European Parliament learned here that the European Commission would soon “put forward concrete proposals to simplify reporting requirements and in fact to reduce them by 25%.”

In line with this aggressive target, the previous data strategy released in 2017 has been significantly upgraded to put ‘data at the core of ESMA’ by including data quality, governance and RegTech/SupTech in its mission through:

  • Simplified, standardised, non-duplicative, and unambiguous requirements achieving data harmonization and a common data dictionary;
  • Reduced compliance cost through the optimisation of reporting flows along with more efficient data quality responsibilities and governance
  • Thought leadership on the regulation of new financial products with an increased focus on information related to sustainability and investor protection.

The objectives are perhaps the most thought through of any regulatory data effort seen to date and very much aligned with JWG’s 2022 Digital Reporting Task Force call for new collaborative models, standards, infrastructure and plumbing now.

ESMA 2023-2028 targets

The ESMA Data Strategy 2023-2028 is a comprehensive plan to enhance the agency’s  role as a data hub which is engaged with the industry and driving standards.

It also aims to ensure public data and information on securities markets is easily accessible and usable by all its stakeholders, providing access to anonymised or aggregated supervisory data, and analytics with the market.

The strategy includes pursuit of thought leadership and collaboration on data standards and reporting innovation with EU institutions (e.g., ECB, ACER) on information sharing and common data initiatives. It proposes to increase collaboration with public society through research projects, academic partnerships and workshops to develop concrete proposals with field experts.

Data dictionary and standards

In response to the European Commission’s 2019 Fitness check which JWG commented on here, ESMA intends to be the driving force behind the further harmonisation of reporting regimes that is required.

The specific actions envisaged by ESMA will include:

  • Reporting standards. increase standardisation and efficiency of reporting regimes, by ensuring the alignment of standards, streamlining the reporting arrangements and mechanisms to ‘push and pull’ data, promoting data sharing and avoiding duplicative reporting obligations (e.g., AIFMD/ UCITS)
  • Executable reporting. Explore the possibility of the use of new technologies to ensure cost-efficient reporting solutions and the opportunities to reduce reporting burden, in particular, study further the possibility to implement the concept of the machine-readable and executable reporting
  • Data dictionary. Develop a data dictionary for securities markets in line with the EC Strategy on supervisory data in EU financial services.

Those involved in JWG’s Digital Reporting Task Force meetings will find much promise in these recommendations as well as the targeted objectives in the timeline below.

EU Timeline

Objective A – Enhanced data hub. Starting in 2023: extend data sharing across NCAs to include: orderbook data as required by the listings package; integrated AIFMD and UCITS reporting; and ICT incident reporting for DORA.

Objective B – Access to public data. Begin ESAP implementation and share data / analytics with the market starting in 2023.

Objective C – Data-driven supervision. 2023 PoC to detect potential market abuse using AI in conjunction with anomaly detection of credit rating agency data using machine learning. Starting with MiFIR, revise data quality frameworks for key reporting regimes and develop advanced monitoring dashboards

Objective D – Thought Leadership. Reinforce engagement with stakeholders by joining ISO governance bodies organising workshops and undertaking joint projects. Conduct SupTech PoCs e.g., anomaly detection on different datasets (EMIR, SFTR, etc.). Engage with stakeholders on supervisory tools for crypto-assets under MiCA and establish an ECB forum to discuss common data and technological initiatives

Objective E – Efficient data policy. Study on further centralisation of ICT-related incident reporting under DORA with other ESAs – to be completed by 2024. By end of 2026 study the integrated reporting system for AIFMD/UCITS and develop an RTS/ITS on reporting.  Develop a data dictionary for securities markets – to be completed by 2024 along with a study on the implementation of machine-readable and executable reporting.

Objective F – Systematic data use. Develop ESMA data governance framework, unified catalogue of datasets, analytics and processes, and finalise the development of the ESMA metadata dictionary by 2024. Plans include the use of RegTech and SupTech solutions, to consolidate and analyse multiple sources of data, including unstructured data, to make the use of data more effective and efficient – to be completed by 2028.

Opensource data perspectives

Participants at JWG’s open RegTech presentation at FINOS London on 15 June welcomed this initiative warmly.

With reporting costs consuming 20-30% of IT budgets, anything a firm can do to reduce reporting costs immediately frees revenue for expenditure on growth projects. There is a huge business case to working collaboratively with peers on opensource data models and tooling which reduce regulatory and operational risk.

The Common Domain Model (CDM) has been a breakthrough for the industry and enabled Derivatives Digital Regulatory Reporting. This approach, which was proven by European Commission/ ESMA workshop on machine-readable and executable reporting (MRER)  here will help shape the adoption path for all regulatory reporting.

EU/US/UK alignment

Europe has taken a big and critical step. ESMA’s strategy is the clearest signal yet that a common, global view of data reporting processes, data dictionary and quality measures is required.

However, this initiative cannot be exclusively European – it must take into account US and UK perspectives.

The US Financial Data Transparency Act of 2022 has similar goals to ESMA’s 2028 strategy in mind for it’s 2029 plans. The UK Bank of England/ Financial Conduct authority’s Transforming Data Collection also seeks to drive “valuable change” in a similar space.  Stay tuned for more information on how these efforts will align.

You can find additional coverage from Thomson Reuters on the EU plan here.

Please let know if you would like to get involved in our collaborative efforts.

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