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The Regulatory Reporting Pendulum Swings Back to North America

As we slowly emerge from our socially distanced bubbles and contemplate the view beyond our own back garden towards the wider world again, we thought to cast our eyes stateside. More specifically, towards the North American regulatory reporting landscape.

So why is that piquing our interest in particular? Well, pre-lockdown, quite a lot happened to suggest that this is where the action will be for the next few years. And despite everything that’s transpired meantime, all evidence points to business as usual - when it comes to the regulators’ priorities, that is.

CFTC’s rewrite of Dodd-Frank act reporting

After CFTC Dodd-Frank reporting went live in 2013, all has been relatively quiet on the US regulatory reporting front, with Europe’s EMIR, MiFID II, and much more recently the inflight SFTR taking all the limelight. However, now the pendulum is swinging back to The States, starting with the CFTC rewrite of Part 43, Part 45 and Part 49 of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (or as we prefer to call it the much catchier ‘CFTC rewrite of DFA reporting’).

The Commission will be revising the principles-based swap data reporting rules first rolled out in 2013 which had the unfortunate outcome of different Swap Data Repositories (SDRs) supporting different fields and formats. This in turn made the CFTC’s job of aggregating and making sense of all this data in disparate formats fairly impossible. The rewrite will enable the CFTC to dial up the level of specificity concerning exactly how reporting should be done, which go a long way to help increase data quality overall.

The industry will need to be fully prepped for the final version of the rewrite rules expected in the final quarter of 2020 and braced for the subsequent 12-month implementation period. So, we expect to see banks, reporting firms, technology vendors, and SDRs will be substantially updating, revising and reconfiguring their reporting solutions and controls frameworks in the interim.

SEC’s security-based swap reporting (SBSR)

The SEC took us all by surprise in on the 18th December 2019 when it announced it had restarted the countdown clock for the long-awaited SBSR - originally planned way back in 2015. It’s not entirely clear why there was nearly a five-year hiatus, but now the wheels are most certainly in motion again.

The rules came into effect in April 2020 with an approximate 18-month implementation timeframe to allow for the registration of Swap Data Repositories and to give reporting firms enough time to get ready. If this timeline plays out, it could result in both the CFTC and SEC parts of the DFA reporting kicking in around the same time.

Not wanting to be left out, the SEC has announced it is following the CFTC’s lead by also conducting a rewrite to harmonise reporting. A lot of progress has occurred globally and at the CFTC level on transaction reporting standards and best practices, so it’s only right that the SEC adopts the appropriate elements. That said, the rewriting of something that never came into being raises a smile all the same.

Consolidated Audit Trail (CAT) and Canadian reporting

If that wasn’t enough to be going on with, US firms will also be tackling consolidated audit trail (CAT) reporting which is going live this year. CAT can be loosely thought of as similar to the EU’s MiFIR reporting, as it’s not so much looking at the systemic risk of OTC derivatives but more geared towards identifying market abuse and protecting the public.

Taking in the view further north, the US’s Canadian counterparts seem to be following the CFTC and SEC rewrites with a discerning eye, picking and choosing the ‘best bits’ and revising their own OTC derivatives reporting rules accordingly.

This is no surprise as many US and Canadian banks are closely aligned and operate in both countries. The wait-and-see approach also makes complete sense practically speaking as the reporting regimes are so similar that once a successful CFTC rewrite project is complete it will pretty much make the ideal starting point for creating the Canadian equivalent.

What’s next?

While there is some talk of that the industry is urging regulators to consider longer implementation time periods to accommodate the impact of COVID-19, it by no means feels like the North American regulatory world has hit the pause button.

The priority for firms now will be to figure out the best working practices to meet the respective deadlines in this new world. Some of the talent may have moved on to new departments, new employers or even new lives. Whatever happens regulators in North America seem to be on a mission to make sure all eyes are on them for the foreseeable future.

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