Specialists from Bloomberg highlight the need for high-quality data and automation through technology to manage day-to-day reporting and ensure compliance.
The COVID-19 pandemic has highlighted the value of digitisation and data transparency to allow the global investment community to make efficient, informed and competitive decisions. Meanwhile, regulators continue to expand their demands for accurate, complete and timely data for regulatory and supervisory purposes.
Financial institutions require high quality data for business analytics and decision-making, but also to build strong governance frameworks that enable regulatory compliance with increasingly complex trade and transaction reporting requirements. Firms in APAC have started to take a data-driven approach to regulatory reporting over the past few years.
In a market where many firms are faced with a plethora of requirements due to the multitude of jurisdictions in which they operate, the pressure of ‘getting it right’ all while managing cost continues to grow. In this article, we explore ways to approach reporting strategically to future-proof operations.
A consistent approach
Adopting a consistent approach to trade and transaction reporting not only helps regulators meet their mandate of promoting market stability, transparency and investor protection, it can also deliver efficiencies for impacted firms. Compliant reporting is dependent on the use of high-quality data and automation through technology, which in turn, brings about efficiency in compliance processes.
As regulatory reporting continues its digitisation journey, it is vital for firms to have strong data management practices, as well as the right technology and robust controls, in place to proactively monitor the quality of the data passed on to regulators.
By investing in the right technology and controls, firms can reduce the risks linked to human intervention and focus on their revenue-generating business, with peace of mind that their reporting is being processed completely and accurately.
Sourcing and capturing the right data
The first challenge lies in the capture of OTC derivatives transaction data, largely because trades are carried out via chats, emails or on trading platforms. Once the data is sourced, the second challenge lies in its integration and aggregation into a single data repository.
Ideally, the front, middle and back office should be capable of accessing the same sources of data to tell one true story for a single trade during the whole trading lifecycle. These daily tasks necessitate having the right technology and integrations in place.
Over- or under-reporting
It is common in Asian jurisdictions for firms to report their OTC derivatives trades once they have hit a certain threshold. However, firms tend to over-report their trades with the expectation that over-reporting is better than under-reporting.
Findings from the Australian Securities and Investments Commission (ASIC), which introduced reporting requirements for OTC derivatives in 2013, showed that some of the financial institutions that have either drastically over- or under-reported their trades in the last six years have already faced penalties.
This was a wake-up call for many firms, particularly those who outsourced their reporting to custodians and brokers. Penalised firms did not have the necessary internal oversight. ASIC requires firms to have robust systems in place to make sure they are reporting what is required. Firms are also responsible for ensuring that outsourced parties comply with oversight requirements on their behalf.
Bringing awareness to the market
The example from Australia has helped bring awareness to the market that firms need to have both a reporting solution and robust controls over the systems they have in place. Checking the box is not good enough. The trend can be observed beyond the region, with European and North American regulators also calling for the adoption of those controls.
One of the challenges faced by buy-side firms, particularly second and third-tier financial institutions, is at times an insufficient understanding of their reporting obligations. To fill that gap, they require solutions to help them validate their data before submitting their reports to regulators, to ensure the quality of their reports and avoid coming under regulatory scrutiny.
On the horizon
Singapore and South Korea are both introducing new reporting requirements for OTC derivatives trades, with the implementation deadlines originally set for October 2020. Both were postponed by 12 months to October 2021 as a result of the COVID-19 outbreak.
South Korea-based firms engaged in OTC derivatives will be required to carry out position and valuation reporting to the Korean Exchange (KRX). In Singapore, firms will need to report trading in equity and FX derivatives, asset classes that were previously not required in reporting to the Monetary Authority of Singapore (MAS).
While regulators such as those in South Korea and Singapore having delayed implementation of new trade reporting requirements, financial institutions need to make good use of the extended timelines to gather the necessary resources.
Bloomberg can help firms of all sizes meet their reporting challenges, offering end-to-end, multi-jurisdictional solutions with embedded controls. Using our solutions, clients benefit from an enhanced user experience with a clear dashboard to help them manage day-to-day reporting, ensure compliance by instantly spotting any issues to be resolved.
Importantly, we help our clients see the bigger picture and solve for their reporting requirements across jurisdictions in a consistent and strategic manner.
Find out more about Bloomberg’s Reporting Services by clicking here.
This article was sponsored and written by Bloomberg. The authors are Amy Kwan, Head of APAC – Post-trade and Compliance; Vicky Cheng, Head of APAC Government and Regulatory Affairs; and Brian Lynch, Global Head – Regulatory Reporting Services at Bloomberg.