Too soon to hang up the deregulation bunting in financial market reporting?

Without speculating on how, and how quickly, any new policies will take effect with respect to any changes in SEC and CFTC oversight and control, it is probably fair to say that the overall message from this new administration is “less, not more” when it comes to financial, industry regulation. This seems certainly to be the case for newer crypto markets, as evidenced by the decision of the SEC to drop its legal action against Coinbase. At this time, it is less clear what it will mean in terms of traditional financial market regulation governing behaviours and transparency.

Given the complexity and immense burden of compliance placed on financial institutions and firms operating in and across the world’s regulated markets, it might be tempting to hope that where the US leads, other jurisdictions may follow, and that the regulatory reporting load might become lighter for all. Before hanging out the celebratory bunting, however, let’s remind ourselves that while the US may be experiencing (enjoying?) a drive to deregulation, there is no let up in other regions. In fact, quite the opposite is true. No let up, no reprieve for regulatory reporting

The EU’s European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Regulation (MiFIR) - and corresponding UK rules - continue to impose rigorous regulatory reporting obligations on market participants. As we observed in the last blog, the UK’s FCA recently imposed its first financial penalty on a firm for its failure to report in accordance with the rules and more actions will likely follow, for breaches of MiFIR and new EMIR Refit reporting obligations.

The ‘bedding down’ period for EMIR Refit compliance that gave reporting firms a six-month period to adjust to new reporting requirements ended in the EU last October. In the UK, the window that allowed ‘old format’ reporting under EMIR closes on 29 March 2025, after which time data reporting parameters must confirm with new EMIR Refit obligations. As at 29 March, all outstanding derivatives trades must be updated to the new reporting format (trade and position level reporting), a particular headache for open transactions that started prior to the rule change (and transition period) but that ‘close’ beyond that date, and that have been subject to daily collateral and valuation updates during the transition period: These trades will all need to be updated to the new format. And make no mistake, regulators WILL expect market participants to be fully up to speed with what is required on and from that date.

In the Asia-Pacific region, the Australian Securities and Investments Commission (ASIC) and Monetary Authority of Singapore (MAS) have also updated reporting rules and requirements with significant revisions to transaction reporting rules with effect from October 2024. These updates are intended to align these regulatory jurisdictions with global reporting standards, and to address the complexities inherent in effectively navigating in and across multiple financial markets.

While MiFIR and EMIR serve different purposes with the former focused on the detection and prevention of market abuse and the latter primarily addressing systemic risk mitigation in OTC derivatives activity, both demand comprehensive and time-critical reporting of transaction details.

Regardless of the specific scope of market regulation, one thing is certain, accurate reporting is predicated absolutely on having accurate transaction data in the first place, and this extends far beyond the core details of the transactions themselves to a host of very specific reference data that identifies the trade, venue, counterparties and a plethora of other fine details associated with every transaction.

To this end, a recurring theme at recent industry conferences, alongside the noise and buzz around new technologies like AI and machine learning, is an acknowledgement of the fundamental truth that it doesn’t matter how clever the technology driving financial transaction processing and fuelling data-driven trading and customer experience strategies is, if the underlying data is not accurate. “Garbage in, garbage out” must remain the byword and watchword for all engaged in any form of data management, and particularly the data required to be reported to market regulators around the globe.

The imperative of accurate reference data

In today’s dynamic and global regulatory context, the importance of robust reference data cannot be overstated. Reference data serves as the backbone for accurate reporting and compliance, and, while regulations themselves may shift, a solid foundation of reference data ensures that financial institutions can adapt swiftly to ensure continuing compliance and avoid potential penalties.

As regulations become more granular, the need for very precise data on financial instruments and counterparties intensifies. The introduction of UPIs (Unique Product Identifiers), for example, requires firms to have detailed information about the products they trade, including specific attributes that uniquely identify each instrument. Without accurate reference data from reliable sources, meeting compliance obligations is an increasingly daunting task.

In light of evolving regulatory developments, maintaining accurate and up to date reference data is more critical than ever. While financial institutions must ensure that their data management systems can handle the increasing scale and complexity of reporting workflows, they must also ensure that the data they rely on to support reporting is similarly robust.

Adapting to a fluid regulatory environment

The juxtaposition of proposed deregulation in the US and tightening regulations elsewhere presents a complex landscape for global financial institutions. Firms must navigate these divergent approaches by adopting flexible compliance strategies. This includes investing in scalable data management solutions that can adapt to varying regulatory demands across jurisdictions.

Additionally, staying informed about regulatory changes is paramount. Engaging with industry groups, participating in regulatory consultations, and leveraging technology to monitor updates can provide firms with the insights needed to anticipate and respond to regulatory shifts effectively.

In an era where regulatory landscapes are in constant flux, the role of reference data in ensuring compliance cannot be underestimated. Accurate, comprehensive and well-managed reference data empowers financial institutions to meet reporting obligations efficiently, adapt to new regulatory requirements, and maintain operational resilience. As we move forward, investing in robust data infrastructure and fostering a culture of proactive compliance will be key differentiators for firms aiming to thrive amidst the complexities of global financial regulation.

Key Updates

MiFIR

In addition to transaction prices themselves, Article 26 of MiFIR mandates that reports must include specific data including the names and numbers of the financial instruments, quantities, dates and times of execution and identifiers for the parties involved, including the use of Legal Entity Identifiers (LEIs) for legal persons.

Significant amendments to MiFIR, which took effect in March 2024, aim to further enhance market transparency and investor protection. A key development is the establishment of ‘consolidated tapes', centralised data feeds that aggregate real-time trading information across EU platforms, streamlining data accessibility for investors.

EMIR Refit

EMIR Refit introduced significant updates to enhance data quality, standardisation and regulatory oversight of derivatives reporting. A key change is the expansion of reportable fields from 129 to 203, and requirement to report in XML format aligned with ISO 20022 and other standards aimed at improving global data harmonisation. It also mandates the use of standardised Unique Transaction Identifiers (UTIs) and Unique Product Identifiers (UPIs) to ensure consistency across financial jurisdictions.

Another major change is increased reconciliation requirements between counterparties, aimed at reducing discrepancies in reported data. Additionally, counterparties must now correct errors within a much tighter timeframe, reinforcing the importance of data accuracy in regulatory compliance.

ASIC Refit

ASIC's new rules, effective from October 2024, introduced changes across all five reportable asset classes—Credit, Interest Rates, Equities, Commodities and Foreign Exchange. Notable updates include the mandatory use of ISO 20022 XML format for reporting and the introduction of Unique Transaction Identifiers (UTIs) and Unique Product Identifiers (UPIs).

MAS

MAS is implementing changes to its reporting framework, also effective from October 2024. The revisions focus on adopting global data standards, including the use of UTIs and UPIs, and also require reporting entities to transition to the ISO 20022 XML message format.

Tackling Data Challenges head-on

If you’re juggling multiple data sources, spending valuable resources on data transformation, or struggling with data access and budget constraints, it’s time to act by contacting us.

Tackle your regulatory data challenges head-on with a no-obligation reference data consultation.