In the eight years since the G20’s Pittsburgh summit, regulatory forces have reshaped the complexity of market infrastructure. Unfortunately, there has not been a corresponding increase in the maturity level of industry engagement between the public and private sector.
The current landscape for regulatory reporting is riddled with complexity – made evident by waves of overlapping requirements to solve for, and generating excessive implementation issues for the industry.
Unaligned obligations that are developed separately and present a number of independent, as well as duplicative, requirements put strain on reporting firms’ most finite of resources – effort and time.
A lack of harmonisation across the legislative process restricts the capacity to ensure consistency of information exchange between the regulators and market participants.
The reporting challenge is in the data
There is an underlying set of data that is generated through trade and transaction activities that is common across the industry. Currently, there are copious layers of reporting obligations – over 90 that affect the EU alone – that cause the same data to be reported in numerous ways and varying forms, but for the same principles.
What is required is a way to decipher what data is most useful to the regulators, to determine an accurate view of the market and simplify the reporting burden.
The industry requires an established framework to govern this data, that engages the relevant market participants through one consolidated approach to reporting, and ensures what is reported is done so in an appropriate way – with the correct information, and to the necessary people, for the right reasons.
Working towards these objectives, one step at a time …
In May, JWG responded to the European Commission’s consultation on the operations of the European Supervisory Authorities with output from our first Reporting and Reference Data (RRDS) working group meeting. Part of that response cited a recommendation for more effective integration of stakeholder groups within the legislative process, to ensure that the EC and ESA’s thirst for transparency can be quenched in the most effective and efficient way.
The European Supervisory Authorities (ESAs) have individually held reporting subject matter experts (SME) stakeholder groups, e.g., ESMA’s Market Data Standing Committee, that actively seek to enhance the quality of market data reported in the EU. The issue is that, whilst the members of these groups are pleased to be engaged, there is often a consensus that their expertise is not being used in the most effective way.
In order to facilitate a correct level of engagement, it would be necessary for the European Commission to put in place a multi-year strategic roadmap of information required to support regulatory decision making. This roadmap would need to have an annual cycle of implementation projects that align with its direction and are required to deliver on specific regulatory goals.
From the years of experience in IT, it is evident that big multi-year projects are prone to scope creep, deadline slippage and cost overruns. This process often ends up finally delivering something that (with luck) matches what was asked for years ago but which is less well matched to what is required now.
In some cases, the ESAs have worked with the infrastructure providers (e.g., ESMA Data Reporting Service Providers) to make this a reality. However, DRSPs do not have a formal forum in which they can be consulted about the entire ESA agenda. Consequently, trade repositories and approved reporting mechanisms (ARMs) – though they provide similar services – are not ever able to convene under the auspices of the regulator. This makes communication, education and the sharing of best practices more difficult and results in lower quality information at higher costs.
We need an official body for data governance
The fundamental component that is missing in this quest is an overarching data community to support the reporting obligations. There is a group of public/private collaboration that discusses the performance and plans for regulatory reporting. Hosted at the ECB, it is regularly attended by industry data experts, along with the International Standards Organisation (ISO), ESAs and the EC. Their agenda covers the progress of standards, emerging best practices, advances in technology and communication across the silos of reporting.
The problem is that this work is subscale … after the fact. It attempts to pick up the pieces, rather than preventing the plate from falling off the table in the first place. More needs to be done upfront to work with the rule makers when drafting the requirements to reduce the cost of complying with regulations by making the reports of greater use to the supervisory authorities.
Market participants are willing to provide the data to reconcile their activities, but the cost of doing so needs to be justified by ensuring the process does lead to the authorities obtaining necessary and useful information.
JWG are harvesting the resources and pooling the expertise
JWG have talked to SMEs from across the industry to determine the objectives for regulatory reporting and the scope of the RRDS problem statement. We are in the process of analysing how best to assemble a framework for regulatory reporting, including the tools required to make this happen and how they might interact.
What is evidently apparent, and exemplified further by the 200+ responses to the EC’s consultation, is the current climate for reporting obligations is too complex to produce, at this stage, a one-size fits all approach.
We need to take a high-level approach that defines who needs to be involved in the process to develop a working solution, lists what deliverables and best practice artefacts can be gathered to operationalise our efforts and agrees upon a timeline in conjunction with the regulatory agenda to ensure it is of most mutual benefit for the industry and the rule makers.
In the coming weeks, the RRDS will continue to examine what these challenges are and how they present themselves. JWG have assembled the troops, it is now time to go to work and determine how best to position our approach to solve the issues at hand.
The next meeting will be held in August 2017 and, to build on the valuable work already contributed from our established member base, we are keen to hear from market participants with expertise in trade and transaction reporting. Please contact RRDS@jwg-it.eu if you would like to get involved.