The UK initiative is exploring the use of technology to help firms meet their regulatory reporting requirements and improve the quality of information reported.
ISDA (the International Swaps and Derivatives Association) has announced the deployment of the ISDA Common Domain Model (ISDA CDM 2.0) to support the UK FCA (Financial Conduct Authority), the BOE (Bank of England) and participating financial institutions in testing phase two of the digital regulatory reporting – or DRR – pilot for derivatives.
The DRR is a UK initiative to explore the use of technology to help firms meet their regulatory reporting requirements and to improve the quality of information reported. The aim is to explore the feasibility of a model-driven and machine-readable regulatory environment that could transform how the financial services industry understands, interprets and reports regulatory information.
Phase one of the DRR pilot was conducted last year to evaluate the feasibility of creating a new regulatory reporting mechanism. It achieved a DLT-based prototype that improved data consistency and quality and increased the efficiency of regulatory reporting.
Phase two began in February this year to address some of the gaps identified in phase one, and in particular, to understand the economic viability of DRR and exploring how it could apply to different product groups. It is also exploring possible third party solutions for generating machine executable regulation and the definition of data and how these may fit into DRR vision.
In addition to the FCA and BOE, Barclays, Credit Suisse, HSBC, NatWest, Santander, Lloyds are also participating in the pilot.
The deployment of the ISDA CDM – which provides a single, common digital representation for how derivatives are traded and managed across the trade lifecycle – as part of the DRR is intended to help understand the feasibility of firms meeting both position-based and transaction-based reporting requirements from the same trade data, and harmonise reporting triggers so firms report the same information at the same time.
“By establishing a common set of representations for derivatives events and processes, the ISDA CDM will promote transparency and alignment between regulators and market participants. Importantly, it will ensure the same information is collected and reported in the same way across the industry,” said ISDA director for market infrastructure and technology Ian Sloyan.
Indeed, the ISDA CDM was created to enhance consistency and facilitate interoperability across firms and platforms, and to provide a foundation for increased automation and efficiency in the derivatives market, upon which new technologies can be applied.
Earlier this year, ISDA published the full version of the ISDA CDM for interest rate and credit derivatives, available to all market participants, as part of a push to develop a broader user community, and ultimately, to further drive standardisation and automation in global derivatives trading.
In April, Digital Asset announced plans to develop an open-source reference code library to help derivatives market participants adopt the ISDA CDM.