The first batch of amendments to the US Commodity Futures Trading Commission’s (CFTC) swap data reporting rules come into effect in a matter of days, on December 5. The revisions are an important step towards greater global consistency in reporting rule sets, thanks to the incorporation of globally agreed critical data elements. But, for the first time, firms also now have the means to check they are interpreting and implementing the rules in line with their peers, further improving the accuracy and consistency of what is reported to regulators.
With the launch of Digital Regulatory Reporting (DRR) 1.0, firms can now access a freely available interpretation of the CFTC amendments developed and peer reviewed by an industry working group. Using the Common Domain Model, this mutualized interpretation is accessible as open-access, human-readable and machine-executable code that firms can either use directly as the basis of their implementation or to check their own understanding of the rules is in line with the industry consensus.
This will avoid the discrepancies that can emerge when each firm has to independently interpret a written regulatory text, as well as increase the efficiency of implementation by avoiding the need for each institution to devote resources and budget to individually adapting and testing its reporting systems.
We’ve already shown this solution works. Earlier this month, we announced that BNP Paribas has tested the DRR for the CFTC rewrite using real data, automatically generating a report that was successfully submitted to the Depository Trust & Clearing Corporation’s swap data repository testing simulator. The bank has said it will now use the DRR for the CFTC amendments from December 5, as well as for future reporting rule changes in Europe and Asia-Pacific. Other institutions are planning to use the DRR to benchmark their own implementations of the CFTC revisions.
Attention now turns to other jurisdictions, as regulators in Australia, Canada, the European Union, Hong Kong, Japan, Singapore and the UK prepare to revise their own reporting rules. Fortunately, we’re already a significant way along in developing DRR solutions for these rule sets too.
Due to similarities in the rule amendments, we believe a large proportion of the code generated for the CFTC rewrite can be applied directly to the DRR being developed for revised reporting requirements under the European Market Infrastructure Regulation, due in April 2024. What’s more, we think almost all the code for the US and European rules can be transferred directly to the Asia-Pacific DRRs, dramatically speeding up the development effort.
Back in 2009, the Group-of-20 economies had a vision of increasing transparency in derivatives markets by requiring the reporting of over-the-counter derivatives transactions to trade repositories. With changes to reporting rules to make them more globally consistent, and with the launch of the DRR to reduce inconsistencies in how firms apply the rules, we’re finally close to the point where we’ll realize that vision and have real, meaningful transparency, enabling regulators to better monitor potential sources of risk.
If you want more information on the DRR or want to be involved in the industry working group, please contact ISDADataReporting@isda.org
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