We’re now about six months away from implementation of part of the US Commodity Futures Trading Commission’s (CFTC) revised swap data reporting rules, making it the first regulator to amend its reporting framework to incorporate globally harmonized data elements intended to improve the consistency and accuracy of reported data. That’s an important and welcome step, but, as with any new or amended rule, this does come with compliance challenges – not least, the need for each firm to accurately interpret the requirements and build the relevant changes into their reporting systems.
At ISDA, we’re working full steam to develop a solution that will ease this burden and help institutions with their compliance efforts ahead of the CFTC’s May 2022 go-live date. As part of our Digital Regulatory Reporting (DRR) initiative, we’re modelling the amended CFTC rules into human-readable, machine-executable open-source code using ISDA’s Common Domain Model (CDM), which firms can use as the basis of their implementation. Crucially, this will eliminate the inconsistencies that can emerge when each firm takes its own interpretation of a written set of rules, as well as avoid the need to plough resources into reviewing, designing and building reporting logic from scratch.
The CFTC amendments overhaul Part 45, 46 and 49 of the Swap Data Recordkeeping and Reporting Requirements and Part 43 of the Real-Time Public Reporting Requirements by incorporating critical data elements (CDEs) agreed by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions, as well as changing certain other CFTC-specific data fields. This is an extremely significant step – as I regularly pointed out as a CFTC commissioner when the original rules were developed, having a situation where each jurisdiction independently sets its own rules and reporting formats results in incomplete data, inconsistencies and unnecessarily high compliance costs.
But while the CFTC amendments are largely based on a consistent set of global CDE standards, there is still plenty of room for variations in how firms interpret what should be reported for every possible product type.
Using the CDM to construct a mutualized, codified interpretation of the rules means institutions will be able to accurately report every data field required by the rules of each jurisdiction. Additionally, if changes are necessary due to regulatory clarifications or modifications, the reporting code can be altered centrally and then deployed consistently by all firms using the DRR. This includes fundamental changes like ISO 20022 that many regulators, including the CFTC, are expected to adopt. Supervisors will also have access to this code, giving them full transparency into how the rules are being applied.
ISDA is currently prioritizing the CFTC’s amended rules given the May 2022 implementation date, but we’re also working to digitize revised EU trade reporting requirements under the European Market Infrastructure Regulation (EMIR). While the rules will not be entirely identical, we do expect a large proportion of the CDEs being coded for the CFTC requirements to be fully or partially reused for EMIR. As other jurisdictions amend or draft new trade reporting rules to incorporate the globally harmonized data elements, the DRR can be extended further. Where jurisdictional differences remain, having a single code for each rule set will cut down on the implementation burden of firms having to build different logic for every reporting regime.
Complying with new or amended trade reporting rules requires a lot of work. Interpreting new rules and writing code to automate reporting to trade repositories sucks up time, money and resources – and the end result may ultimately be inconsistent between institutions and not in line with regulatory expectations. The DRR initiative will create significant efficiencies in that process, resulting in cost savings for firms and reported data that is reliable, consistent and useful for regulators.
For more information or to join the ISDA working group that that is developing the reporting best practices and CDM code, please email CDMDRR@isda.org.
Watch a panel discussion on regulatory reporting and the DRR initiative from the 2021 ISDA North America Conference. Click here.
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