The aim of derivatives regulatory reporting is to improve transparency so regulators can monitor market activity and identify emerging risks. Although reporting rules and subsequent updates have resulted in improvements, they haven’t achieved fully consistent outcomes, leading to implementation and comparability challenges, as well as excessive costs. Putting this right requires a better process to ensure firms are implementing reporting rules consistently and in line with regulatory expectations, as well as adjustments to the rules to eliminate unnecessary reporting obligations. ISDA is working to achieve progress on both fronts.

Last week, we launched the latest addition to the ISDA Digital Regulatory Reporting (DRR) solution – the DRR Tracer Agent, powered by artificial intelligence (AI) – so users can gain valuable insights into the discussions and decisions that influenced the coding of reporting rules. The ISDA DRR uses the open-source Common Domain Model to convert an industry-agreed golden-source interpretation of reporting rules into machine-executable code, making implementation of those rules far more efficient and less costly. We launched the DRR in 2022, just as the US Commodity Futures Trading Commission (CFTC) was about to implement updates to its swap data reporting rules. Since then, we’ve applied it to eight other reporting regimes around the globe and have committed to supporting 14 reporting rule sets in nine jurisdictions.

The DRR Tracer Agent is the next step in the development of this initiative, giving users clear visibility into how reporting rules have been interpreted. Using AI, the agent extracts information from ISDA working group discussions and documentation, providing a searchable and auditable record that allows users to map DRR interpretative decisions all the way back to the regulatory reporting requirements – giving firms confidence they are reporting in line with what regulators want.

We’re not stopping there. We have four more AI agents in development that will further enhance the DRR user experience and deliver improved outcomes for regulators. These include a Translator Agent that will help convert new or updated reporting requirements into DRR code, a Coder Agent that will turn plain-language prompts into CDM-compatible code, a Knowledge Agent that will contain all of ISDA’s standards and definitions in digital format and a Mapper Agent that will help translate firms’ internal data to the CDM to accelerate DRR adoption. We’re looking forward to putting these agents to work to take regulatory reporting to the next level of automation and efficiency. Industry working groups will continue to review and agree on ISDA DRR interpretations, but AI will speed up the translation of those expert judgments into code.

Improvements in industry reporting processes represent a vital step forward, but they must be matched by a commitment to reduce excess complexity in the rules. ISDA is very supportive of efforts by the UK Financial Conduct Authority and the European Securities and Markets Authority to improve their reporting frameworks, and we also welcome the CFTC and US Securities and Exchange Commission (SEC) initiative to harmonize, modernize and streamline data reporting requirements for swaps and security-based swaps. These are positive developments that could pave the way towards improved data quality and regulatory oversight.

In developing our response to the recent CFTC-SEC consultation, we carefully scrutinized 177 data fields and identified 43 that could be reasonably removed on the basis they provide no regulatory value, are not required in other jurisdictions or duplicate data that is already reported or obtainable from reference sources. We think the removal and modification of the reporting fields we’ve identified will greatly enhance the framework, both for market participants and regulators. And as the ISDA DRR already covers both CFTC and SEC rules, firms will be able to use it to implement any changes quickly and consistently.

Derivatives regulatory reporting has been a highly complex and challenging undertaking, and addressing the flaws in reporting rules and processes has not been straightforward. But 17 years on from the original G-20 mandate to require the reporting of derivatives transactions, it does feel that we’re turning a corner. With the continuous evolution of the ISDA DRR and ongoing efforts among regulators to improve their rules, we are moving towards a truly fit-for-purpose reporting regime that delivers lasting, meaningful transparency.