With the publication of the European Regulation of OTC Derivatives, Central Counterparties and Trade Repositories (known as 'EMIR') in the European Journal on 27 July 2012, the Regulation came in to force on 16 August 2012. Most requirements are still subject to final approval of the supporting technical standards being drafted by ESMA, with the majority expected to be approved by the European Commission by the end of 2012. However, EMIR requires that any trades entered into prior to the Regulation coming into force which are still outstanding at that date, and any contracts entered into after the Regulation comes into force, will be subject to the reporting requirement at the latest by May 2013 assuming a trade repository is available to report the trade to, otherwise to ESMA within two years. Though the actual reporting is therefore some way off, the need to collect data on derivatives contracts has already begun.
Similarly, the Commodities and Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) jointly published a final definition of what constitutes a swap, which under the Dodd Frank Act triggers the initiation of the all requirements around OTC derivatives. Requirements to ensure appropriate record keeping of historic trades (those initiated prior to 25 April 2011) is required by 31 December 2012, with ongoing transaction reporting to Swaps Data Repositories (SDRs) commencing on a phased basis (depending on the type of entity you are and the type of asset underlying the contract) from 12 October 2012.
This is just the beginning…
Reporting of derivatives to trade repositories is only the beginning. There are many other related reporting requirements in the pipeline – reporting in response to the EU Short Selling which commences in November, Common Reporting on prudential data as part of changes to the Capital Requirements Directive and Regulation, recently mooted proposals for a ‘repo repository’ to capture additional data on these transactions as part of the shadow banking agenda, as well as myriad ad hoc and ongoing requirements from local regulators.
Meeting these requirements will be challenging, but certain key steps are critical:
- identifying the data required and looking at technology options to ensure consistency and efficiency where the same underlying data feeds multiple reporting requirements;
- considering how best to optimise the process by which this data is captured, collated, analysed and reported;
- assessing the governance and accountabilities currently in place to ensure the process is well controlled and is given appropriate attention by management;
- embedding flexibility to accommodate inevitable new requirements or adjustments to existing ones; and finally
- educating people to ensure effective delivery.
Opportunities as well as challenges
The sheer volume – and significant overlaps – between requirements increases the scale of the challenges. But efforts at compliance should not lose sight of the opportunities to optimise the cost of delivering reporting, improve the quality and control over historically weak processes, and driving business benefit from the vast new data sets at your disposal.
For more information, please contact Kara Cauter.