2024/25 marks a significant chapter in the Regulatory Reporting songbook. With seven rewrites to existing regimes across Europe, North America and APAC, as well as the introduction of the crypto-asset reporting regime in Europe (Exhibit 1), global financial institutions are well and truly preparing themselves for a challenging implementation period ahead.
Given the extent of change on the horizon, global entities responsible for reporting are faced with challenges covering: regulatory divergence due to jurisdictional nuances, data considerations to source the necessary information to populate new Critical Data Elements, integration of third-party data sources and processes (such as the ANNA DSB Unique Product Identifier (UPI) service and the CPMI-IOSCO Unique Trade Identifier (UTI) waterfall), and finally implementing consistent but proportionate assurance controls and processes to monitor the completeness, accuracy and timeliness of reporting. Nevertheless, despite the myriad of changes, there are significant opportunities for responsible entities to re-think and re-design their future reporting and oversight models.
Exhibit 1: Global Regulatory Reporting Roadmap 2024/25
This article will outline some of most significant changes facing the global regulatory reporting landscape across CFTC/SEC, EMIR and ASIC/MAS reporting reforms, and will cover not only the challenges facing responsible entities, but also cast a spotlight on the available opportunities to consolidate and streamline reporting and oversight in light of these reforms.
CFTC Rewrite: The Compliance Concerto
The CFTC’s ambitious reform of swap data reporting isn’t a single event, but a multi-phased journey towards enhanced transparency and efficiency.
CFTC Rewrite’s second phase recently came into effect on 29th January 2024, mandating the use of UPI for non-commodity derivatives via the ANNA DSB service. There are more planned changes on the way over the next year, with the adoption of the ISO 20022 XML schema as well as current proposals to introduce 49 new data elements to the reporting requirements.
Firms will face the following harmonization hurdles with these changes:
- Data challenges: Responsible entities will require significant effort and potentially system reconfigurations to map existing products with the complex UPI taxonomy. Entities should consider implementing robust data governance and validation to ensure data aligns with UPI standards. Subsequently, the increased data fields and validation rules will require a well-tuned assurance process
- Commodity Cacophony: Increased complexity of managing separate reporting workflows for different assets as UPI implementation for commodities is delayed
- Untimely and Inaccurate Reporting: Responsible entities will need to ensure complete and accurate reporting including identification of incorrect or inconsistent reports and will have a 7-day window for remediating reporting errors post-discovery. Failure to remediate within this window requires a notification to the regulator within 12 hours.
EMIR Refit: Building on the Regulatory Rhythm
With <100 days to go until EU go-live on 29th April 2024, and <250 days until UK go-live on 30th September 2024, the time is ticking to implement EMIR Refit. Material changes are on the horizon including an uplift of >70 reporting fields, ISO 20022 XML adoption, UPI integration, and stricter reconciliation requirements.
Some of the key challenges facing responsible entities are:
- Many European entities have both an EU and UK reporting obligation through their OEIC, SICAV and ICAV fund ranges. Diverging standards between ESMA and the FCA and associated timelines for EU/UK Refit is resulting in entities running a dual-phased approach covering both the implementation of day-to-day reporting and the 180-day backloading obligation.
- A typical reporting model for buy-side firms in Europe is that of delegated reporting, where reporting is delegated to the sell-side counterparties at low or no additional cost. Historically, this has created challenges with counterparty oversight, untimely remediation of errors and omissions, and inconsistencies in reporting standards and expectations due to deviations between ESMA’s prescriptive guidelines and industry standards (e.g. ISDA Best Practice).
- Increased regulatory scrutiny and data interrogation from European competent authorities, including recent fines in Europe from the CBI and CSSF for incomplete reporting, lack of internal controls and insufficient governance arrangements.
APAC Rewrites: Harmonizing ASIC and MAS Reporting
Driven by a desire for global harmonization of regulation, ASIC and MAS have placed significant effort into regulatory rewrites that are anticipated to go-live in October 2024. ASIC’s efforts focus on reinforcing transparency, risk mitigation, and regulatory oversight. MAS is moving in lockstep and advancing with a comprehensive overhaul, emphasizing risk management and systemic stability.
Both ASIC and MAS prioritize aligning their regulations with international standards to facilitate cross-border consistency and cooperation, adopting IOSCO’s CDE guidance and ISO 20022 XML message format. The rewrites are responsive to the evolving nature of derivative markets, technology, and the need for agile regulatory frameworks.
However, these changes create some key challenges for responsible entities:
- Safe-Harboring: The ASIC Rewrite removes the ‘safe-harbor’ provision for delegated ASIC reporting. Firms that delegate their reporting to another party will be responsible for ensuring submissions made on their behalf are complete and accurate.
- Backloading: Both ASIC and MAS place back-loading requirements on responsible entities. All open and outstanding derivatives must be back-loaded in the new schema within 6 months of go-live.
- Reporting Models: A reluctance to provide guidance on position vs. contract level reporting models in the ASIC guidelines has left this up to interpretation of responsible firms, ultimately leading to diverging models between participants. MAS have provided clarity, stating contract level reporting is mandatory.
“Rationalization of reporting solutions, data sources/platforms, and vendors (where applicable) can result in material cost savings, improved efficiency, enhanced flexibility for future regulatory change, and more streamlined operational processes”
Building a Global Regulatory Reporting and Oversight Model
Despite the global reforms and jurisdictional nuances, there are opportunities available to responsible entities to streamline regulatory reporting systems, processes and controls (Exhibit 2). The regulatory reforms overlap on a number of critical components, including the integration of the ANNA DSB UPI service, the adoption of the CPMI-IOSCO UTI waterfall, material overlap across reportable fields across jurisdictions, and the implementation of the ISO 20022 XML schema for both inbound and outbound reports.
Responsible entities must ensure completeness, accuracy and timeliness of reporting and adopting consistent and proportionate systems, processes and controls across the global suite of reporting obligations to ensure greater consistency of reporting output and quality. Some of the opportunities include:
- Advancements in regulatory technology across workflow solutions facilitating streamlined exceptions management, logging/tracking of defects, and the establishment of greater ownership and governance across the business.
- Adoption of automated controls that can be applied globally to identify real-time data quality exceptions and omissions, combined with comprehensive end-to-end third-party assurance testing to reinforce in-house controls.
- Rationalization of reporting systems and data architecture including mastered product, instrument, and counterparty data with defined lineage across global reporting regimes (where overlap exists) combined with clear data ownership and data validation controls.
Exhibit 2: Opportunities to Streamline Regulatory Reporting
Irrespective of these opportunities, testing of changes to the reporting regimes is critical to avoid future large-scale remediation exercises and/or regulatory fines.
So as the lights go down, and the curtains close, one question still remains: Will responsible entities grasp this opportunity to streamline, harmonize and future-proof their global regulatory reporting model, or will they miss their cue, leaving discordant systems, processes and controls that risk hitting the wrong note with the regulatory competent authorities?
If you want more information on how best to approach your global regulatory reporting obligations and operating model, get in touch with Alpha’s team of regulatory reporting specialists. We support our clients globally with the most complex regulatory reporting advisory, implementation and remediation projects.
About the Authors
Ben Shenkin
Associate Director
Ben is an Associate Director in Alpha’s Regulatory Compliance and Risk practice and leads Alpha’s Global Regulatory Reporting proposition. Ben has managed numerous Regulatory Reporting engagements for global asset and wealth managers covering operating model strategy and re-design, vendor selection, regulatory change implementation and large-scale remediation and back-reporting exercises
Alex McDonald
Consultant
Alex joined Alpha in July 2022 as a Consultant and now has over 8 years of experience working in Financial Services. During his time spent at Alpha he has played a key role on several projects across Regulation, Compliance and Operations. Recent experience includes guiding a client’s EMIR team through an OMS migration and a large scale MiFIR remediation project with an international Asset Manager
Nikhil Radia
Consultant
Nikhil is a Consultant at Alpha in the AWM Team and has more than 2 years of financial services and over 2 and a half years of private capital industry experience. Prior to joining Alpha, Nikhil worked on front, middle and back-office implementation projects for private equity clients at Holland Mountain. Nikhil also has diverse project management, operational strategy and change management experience. Nikhil holds a degree in Accounting and Finance from the London School of Economics