The sheer number of overlapping regulatory reporting regimes makes compliance difficult. MiFID II, which comes into effect in January 2018, significantly expands the scope of transaction reporting. EMIR, which is a reporting regime for derivative transactions under the EU regulation on OTC derivatives, CCPs and trade repositories, came into effect on 10 April 2014. Reporting for securities financing transactions (SFTs), SFTR, is set to go live in the first quarter of 2018, while the Regulation on wholesale Energy Market Integrity and Transparency (REMIT), which is specific to wholesale energy products and “introduces a market monitoring framework to detect and prevent market abuse”, came into force in October 2015. And this only summarises the picture for trading – the list for risk and audit/tax reporting adds a further set of TLAs into the mix.
Each of these regimes fundamentally changes the way in which firms manage and store data, because every rule has different ‘DNA’ and asks for that data to be extracted from the trade lifecycle of similar products, using different terminology, timing and destinations. But JWG’s analysis of MiFID II, EMIR, SFTR and REMIT shows that there is a large overlap of common data:
► 40% (278 of 687) of the total fields are, in some way, talking about the same facts
► Of the 40%, 31% field definition commonalities lie with transaction background, counterparty/market and financial instrument details
► Of the 40%, 31% of formats broadly align.
What’s more, other regulatory rules, like CRD IV, AnaCredit and Solvency II, require information in formats which will need to be looked at in conjunction with trade and transaction reporting (T&TR) information. Both firms and their prudential supervisors need to be able to link T&TR requirements to underlying data in their source systems and ensure that the formats and standards match those used by the risk models for systemic oversight.
It’s clear that convergence of data elements and increased harmonisation are needed to navigate the vast regulatory reporting landscape, and recent developments have highlighted that there exists an appetite for this kind of standardisation. Indeed, in August 2016, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a second consultative report on Harmonisation of the Unique Product Identifier (UPI), which made proposals for a harmonised global UPI. Furthermore, the Financial Stability Board (FSB) is attempting to lay the foundations for harmonisation of OTC derivatives data elements.
Despite these noble efforts for harmonisation, though, much work is still to be done. Things are moving towards standardisation – particularly in the reference data space – but slowly. The current regulatory reporting landscape encompasses divergent reporting rules both between and within countries. For example, the US Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) require different data to be reported, and have set different parameters to determine which trades should be subject to reporting. Many in Europe have argued that national discretions between countries are actually increasing, and the exact parameters of what must be reported are yet to be defined. This creates a plethora of operational difficulties for firms who often lack coherent data strategies and centralised data houses.
Many firms still rely on ad hoc data sources and Excel spreadsheets to meet the increasingly granular requirements for regulatory reporting. One potential solution to help solve these issues is the use of a data lake, which is defined by some as “a storage repository that holds a vast amount of raw data in its native format until it is needed”. A great benefit of data lakes, is that they are able to extract data from legacy infrastructure. Data lakes become particularly powerful when they are paired with a common semantic model, as representing data in “common, business friendly terms drives improved data quality and reduces the need for manual adjustments”.
Many open questions still underpin today’s regulatory reporting regime, and prioritisation is key for firms. JWG will be exploring these issues in more depth at our 300+ person RegTech Capital Markets Conference on 28 February 2017.
The panel on Getting synergy from regulatory reporting will feature speakers from some of the largest vendors and investment banks on the planet. They will reveal, amongst other things, what their priorities for regulatory reporting in 2017 are, how the best strategies are being realised and what it takes to ‘get it done’ right. In addition, with many big-name sponsors, such as Accenture, IHS Markit and Sapient, there will be plenty to see on the stands and opportunities to talk to the experts.
If you would like to join over 50 firms and talk to industry leaders about these problems and their solutions, you can sign up here.
We will be closely following any updates on regulatory reporting … especially if it affects the trade and transaction reporting landscape. We will also be launching our Reporting and Reference Data SIG (RRDS) in March, which will look at the details of reporting formats, standards and collection mechanisms as well as data models and gap analysis across comparable regimes. If you would like to find out more about this special interest group, please contact email@example.com.