A year of regulatory changes, possible deviations and certain delays
Although 2021 has not been the busiest year in terms of the implementation of the commissioning of regulatory reports, important developments have taken shape. Among the most important of these developments was the publication of a series of consultation documents and updates to regulatory and/or industry technical specifications, including ESMA’s draft guidelines for reporting under the EMIR, the FCA’s EMIR consultation document and a draft ISO20022 XML Schema.
With many of the upcoming global regulatory reporting reviews and rewrites being pushed to later dates, there remains much uncertainty about timelines and requirements as we look to 2022.
A push towards global standards leads to delays
A major contributing factor to the delays has been the desire to meet global standards, driven primarily by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).
Implementing new sets of local rules before international standards are fully established will result in additional operational costs and expenses for additional implementation phases for reporting companies, reporting providers and trade repositories. Meanwhile, long delays in compliance dates continue to limit regulators’ ability to effectively monitor systemic risk in markets.
Industry pressure could see major implementations delayed to 2023
The ‘Technical Guidance for Critical Data Elements (CDE)’ was released in April 2018 and is relatively well understood by industry players. However, there is still a lot of work to be done before the requirements are fully integrated into the ISO 20022 scheme and the Unique Product Identifier (UPI) is fully utilized by industry.
The generic ISO 20022 scheme is expected to be approved by industry bodies, including ISO and SWIFT, in the first quarter of 2022, although industry groups are pushing for a minimum delay of 18 months between each jurisdiction’s finalization of the scheme and the date compliance that accompanies it. Additionally, the earliest approximate date that the Derivatives Service Bureau (DSB) will make UPI available is expected to be sometime in Q3 2022.
A postponement of the CFTC rewrite’s go-live date could cause problems
The Commodity Futures Trading Commission (CFTC) is expected to be the first to implement new requirements in 2022, although the May 25 compliance date is uncertain, with many market participants having already requested a deferral. The question is how long should that delay be?
Any heist is generally expected to last between six months and a year. While this will allow reporting entities and interchange data repositories to better prepare for the new requirements, it will not be long enough to accommodate ISO and UPI, which means other implementation will be needed within a year or two. If the delay is
not approved, expect chaos.
EMIR REFIT on the right track?
The timelines for Europe seem to be more considered. The European Commission (EC) has committed to an implementation date of 18 months from the approval of EMIR REFIT and the FCA is expected to align closely with its timeline. With the EC due to approve the technical standards in the first quarter of 2022, the REFITs will probably have a compliance date in the third/fourth quarter of 2023.
The silver lining of these important releases is that there seems to be enough time to meet ISO 20022 and UPI requirements. Therefore, companies that start preparing early could start building more strategic operating models, as the likelihood of new REFITs in the near future is low.
The biggest concern with EMIR REFIT is the possibility that we may see a discrepancy in requirements between ESMA and FCA. In the first big test since Brexit, if the FCA decides to deviate even slightly from ESMA’s requirements, companies will have to split their operating model with inevitable increases in both risk and cost.
Changes to APAC and other regulations could add additional burdens
APAC jurisdictions are also expected to see substantial changes in 2022 and beyond with the Australian Securities and Investments Commission, Monetary Authority of Singapore, Japan Financial Services Agency and Hong Kong Monetary Authority Kong, all of which are planning rewrites over the next two years.
Although technically not a rewrite, other significant changes are coming to the UK and Europe regarding SFTR reporting with ISO schema changes, validation rules and TRACE improvements.
To add another layer of complexity into the mix, while the FCA granted industry its request to delay the go-live date until April, ESMA refused it and adheres to the original deadline. from the end of January.
Already under pressure to meet the January target date, many companies may now have to support two different operating models for some time. And, for good measure, at the end of November we saw the EC publish a draft legislative proposal for MiFIR, suggesting that even greater development of transaction reporting will be needed in the future.
There are far too many regulatory reporting changes on the horizon to mention here, but one thing is certain: regulatory and compliance teams will need to keep a close eye on changing deadlines and requirements, and teams of change/operations are likely to become very busy.
Additionally, regulators are actively increasing oversight and have begun issuing fines for non-compliance. Therefore, complete, accurate and timely reporting has never been more important.