Ian Thomas of Quorsus gives a brief history of Regulatory Reporting Data Standards.
Once upon a time, twenty wise men and women met in Pittsburgh and, amongst other things,decreed that
OTC derivative contracts should be reported to trade repositories.
This was in September 2009. Roll forward over eleven years and it’s true that all the G20 nations have some form of reporting in place. But how useful is all this data, in terms of realising a core objective, that of “greater transparency in their operations”?
You see, it’s not consistent. It’s not standardised. It can’t be aggregated and properly analysed. Despite the G20 nations seemingly working together, the reality is that they all had subtle, but fundamentally, different approaches to who should report, what should be reported, how it should be reported, whether both parties should report, how to differentiate between trade reporting and transaction reporting.
The list goes on. And on. And on.
When the CFTC went live in 2012, followed shortly after by ESMA in Europe, firms hastened to build expensive engines to ensure compliance, bolting on additional functions as more regimes came on board, as the rules became more clear and as supervisors recognised a need to provide more clarity over what was required. They had to second guess regulators expectations with regard to the finer details that were absent from the texts.
ESMA began by telling firms what to report (RTS 1), then later how to report (RTS 2), supporting both with an ever expanding “Q & A” document, providing guidance where the rules were lacking.
However, still there remained gaps. In Europe, where reporting is dual sided and trades are Paired and Matched, it is possible to be compliant yet fail to match with the counterparty. This is because the rules allow you to represent your data in multiple ways. Even simple fields such as ‘Maturity Date’ are open to interpretation.
How can data be aggregated and analysed, how can supervisors have the transparency they crave when the data is not standard?
In 2016, in the absence of tighter rules, a small number of major reporting firms, led by the consultancy firm, “Base60” and through Trade Associations like ISDA, sought to establish some Best Practices, based on the validation rules provided by ESMA. These Best Practices sought consensus over the preferred way to present fields, in order to reduce exceptions and increase levels of matching. Ultimately enabling a proper understanding of the trades by the supervisors.
Then along came MiFID II, firms were already stretched and didn’t have the capacity to review their reporting standards, so long as they were compliant. Especially when the Best Practices didn’t have the broader support of other associations, or ESMA.
Yet today, firms are saying they want improvements in data standards, they want to spend less time analysing breaks and dealing with exceptions, they want to show the regulators that they are providing the transparency that is craved.
Yesterday, ISDA published an updated set of Best Practices.
The new Best Practices have been worked on by multiple associations. Even ESMA have given feedback. The industry now has a chance to significantly improve data standards, reduce their own costs and improve transparency. The regulators have an opportunity to support this drive and achieve the transparency they crave.
It won’t be easy. These Best Practices only cover ESMA. But it’s a start, and a very significant one. If the industry can be incentivised to make use of it; to support it; enhance and evolve it; expand it; if the regulators recognise it and encourage use of it; if other jurisdictions can learn from it; then we can achieve what those great men and women dreamt of back in Pittsburgh in September 2009.
And then, I’m sure we can all live happily(ish) ever after.
At QUORSUS, we are making Data Quality a core part of our mission and we are already working with a small group of firms to improve data standards as we look forward to SFTR, the CFTC re-write, and much more. More updates to follow. In the meantime, get in touch if you want to learn more.