ASIC’s Alex Orgaz-Barnier and DTCC’s Priya Kundamal spoke to Regulation Asia about the changes to the derivative transaction reporting regime in Australia.
On 20 December 2022, ASIC (Australian Securities & Investments Commission) issued the final updates to its derivative transaction reporting rules. The rewrite was the culmination of a series of consultations that aimed to simplify ASIC’s rules for reporting OTC derivatives transactions to trade repositories while also aligning with global standards specified by CPMI and IOSCO.
Following the consultative feedback, ASIC decided it would implement all rules at once leveraging a “single-stage approach”, commencing on 21 October 2024. This aligns with the final rules in Singapore, which is also adopting a single-stage implementation approach.
“Industry feedback was that more time, money and effort would be required to understand what changes had to be made and when to split the changes out,” said Alex Orgaz-Barnier, Senior Manager of ASIC’s Market Infrastructure Team. “So we listened and gave industry enough build time and consolidated into that single stage approach.”
To finalise an implementation date, ASIC engaged actively with various stakeholder groups, considering implementation dates in other jurisdictions, including the 29 April 2024 go-live date in the EU and the 1 April 2024 implementation date in Japan. (Hong Kong has not yet finalised its rules.)
“The industry said it needed six months after ESMA’s go-live to regroup and retool, as it’s the same pool of resources being shuffled around to do this build and rollout,” Orgaz-Barnier said. “There are also bottlenecks when it comes to service providers because everyone uses the same service providers. So six months between ESMA and the next APAC go live was considered to be thoughtful towards the burden that industry has to manage.”
When there is a two-stage approach, it can cause a lot more complexity and requires more investment, because teams have to be dedicated to each of the different phases and reporting deliveries, explained Priya Kundamal, Head of DTCC’s Singapore trade repository business.
DTCC, which has been operating trade repositories in the region for a decade, had advocated for ASIC to align its implementation timelines with other jurisdictions, to ensure market participants subject to multiple jurisdictional reporting regimes “do not have to contend with conflicting or contradictory implementation schedules across the global OTC derivatives marketplace.”
“Given that global regulators are undergoing reporting rewrites all at about the same time, the move by ASIC to try to simplify implementation for the industry with a single-stage approach was a step in the right direction,” Kundamal said.
DTCC’s support for industry
DTCC’s Data Repository Singapore (DDRS) team has been working closely with ASIC in reviewing the new rules and released project implementation documentation – including the message specifications and the functional change document – for reporting entities to start preparations for the upcoming ASIC rewrites.
DDRS plans to rollout a fully functional UAT (user acceptance testing) environment for firms to start their testing by April 2024, which will be six months before the 21 October 2024 go-live date.
“As we look towards the 2024 implementation deadline, the industry needs to think about a controlled and efficient application of regulatory change,” Kundamal said. “It is time to start thinking about that now because there is significant planning and execution that will need to take place. Clients are facing a challenge preparing for and complying with these new obligations, and adequate testing can really help with mitigating that risk.”
DTCC has been investing heavily in technology, especially cloud technology, and collaborating with partners such as AWS and Snowflake to continue to improve their data processing capabilities. According to Kundamal, one of the key benefits of being in the cloud is the ability to operate multiple environments in a cost-effective manner with testing environments being run simultaneously.
“Our clients in Australia have informed us that there is a need to have a testing environment with the current production version as well as the new version,” she said. “Through our cloud upgrades, we now have multiple environments, which can be easily implemented and then taken down when the project is completed.”
In support of testing, DTCC plans to roll out a validations simulator tool in its GTR service that will allow clients to test the validity of their messages about four months ahead of the availability of the UAT environment. “All this is made possible leveraging technology as an enabler in meeting the requirements of the upcoming wave of rewrites over the next 12-18 months,” Kundamal said.
Reducing industry burden
ASIC made a number of changes to its final requirements that, based on consultative feedback, aiming to lower the implementation burden for industry. For instance, ASIC extended its reporting deadline from T+1 to T+2. For ‘packaged’ transactions, the deadline was extended to T+4.
Orgaz-Barnier said this was primarily due to feedback in relation to the UTI generation and sharing provisions, namely that the T+1 reporting deadline would be challenging for non-mainstream cases of ‘packaged’ transactions and transactions that are not electronically confirmed. For example, issues could arise when a non-UTI generating entity would have to create a UTI for reporting and then correct it when they received a new UTI from their counterparty, he explained.
“To ASIC, it was entirely reasonable for the industry to need more time for these types of issues,” Orgaz-Barnier said, adding that the T+2 reporting deadline also aligns with the requirements in Singapore, Hong Kong and Japan.
ASIC’s final rules also no longer require a ‘renewed LEI’ to be reported for certain entities. The earlier draft rules included a requirement for reported LEIs to be current (i.e. duly renewed), with some exceptions for foreign entities.
“In response to industry feedback, we pared back the renewed LEI requirements to focus on the reporting entity, counterparty 1 and central counterparty,” Orgaz-Barnier said. “Besides the improved alignment with ESMA’s requirements, we saw that this change ensures we are not imposing extraterritorial reach on foreign counterparties by requiring them to have a renewed LEI.”
ASIC also amended its rules to address industry concerns around re-reporting of data elements that were not originally captured when legacy transactions were entered into. Under the final rules, only the information already recorded in electronic form needs to be re-reported, avoiding the need for firms to refer to paper-based trades to recreate information.
“The bottom line for us is we really tried to make life easier for reporting entities where we could,” Orgaz-Barnier said. “We take consultation seriously. We don’t consult just to go through the motions. We really listen and we try to accommodate with reasonable changes.”
What’s next for implementation
To best prepare, firms must ensure that they have a thorough understanding of the rule changes and assess their technical readiness for the forthcoming mandates. DTCC says many industry participants have indicated relative unfamiliarity with the developments around UPI as well as ISO 20022.
In its own engagement with stakeholders, ASIC likewise identified the move to ISO 20022 as one of the biggest changes for the industry. Orgaz-Barnier said reporting entities are largely planning to rely on third party service providers to help manage their data and convert it into the XML format required under the new rules.
According to DTCC’s Kundamal, the regulatory mandate that requires information to be reported to trade repositories in an ISO 20022 XML message not only provides clarity but also simplifies the reporting process and ensures a common data standard and single technical format is used for reporting.
“Historically, the existence of different reporting segments and multiple ways to report added complexity,” she says. “While the move to ISO 20022 XML may require more effort up front, from a long-term perspective, this change brings us a step closer towards the original G20 and FSB [Financial Stability Board] aim of being able to aggregate data across the globe.”
While the ISO 20022 Message Schema for OTC derivatives reporting has already been finalised and is now available to the market, firms will need time to adopt the new technical format. Kundamal says DTCC is rolling out submission templates with ISO XML specifications to support industry implementation, building on its experience from implementing EU SFTR and adopting a CPMI-IOSCO recommendation aimed at improving the consistency of the inbound data.
A key goal of the G20 commitments in 2009 was the collection of data sets to help identify market abuse as well as manage systemic risk. The latter requires a global data set as opposed to a jurisdictional specific set of data. The ISO mandate is a significant step in collecting a global data set, Kundamal said.
Responding to industry requests, DTCC developed a trade reporting solution known as Report Hub, leveraging its 50 years of market infrastructure experience, to simplify and automate pre and post trade reporting capabilities for compliance with regulations in 14 jurisdictions.
The solution translates trade data into the required format, enriches it, provides jurisdiction eligibility checks, and identifies errors and missing data elements. Post reporting, it offers reconciliation and data insights capabilities to check for reporting accuracy, timeliness and completeness.
In 2023, DTCC will continue to educate the industry on the global derivatives rule revisions through client forums held across jurisdictions, to promote better understanding and overall readiness. “We look forward to continuing to work closely with key stakeholders, including market participants, industry associations, standards bodies and regulators as these rewrites are introduced,” Kundamal said.