Preparing for APAC’s upcoming derivatives reporting regulations

Background

The global transformation in trade reporting regulations continues its march, with 2024 marking a pivotal year as these changes reach the Asia-Pacific (APAC) region. The Australian Securities and Investments Commission (ASIC) and the Monetary Authority of Singapore (MAS) are introducing comprehensive revisions to their transaction reporting requirements, seeking alignment with global standards, increased transparency and to incorporate feedback from their respective reporting entities.

Firms engaged in over-the-counter (OTC) derivatives trades must now develop a comprehensive understanding of these new rules and evaluate how they map to their firm's existing compliance process. The onus is on these entities to devise a robust strategy that ensures their readiness and full compliance ahead of the October 2024 deadlines. As part of our ongoing commitment to remain at the forefront of regulatory developments in the financial markets, we have reviewed the changes and distilled their implications for firms, producing this blog to give you a head start.

What are ASIC’s changes in derivatives reporting?

On December 19, 2022, ASIC unveiled the ASIC Derivative Transaction Rules (Reporting) 2024. The modifications brought forth by the Rules Rewrite initiative cover all five presently reportable asset classes—Credit, Interest Rates, Equities, Commodities, and Foreign Exchange—in addition to Valuation and Margin reporting. As well as easing certain regulatory pressures, by extending the transaction reporting deadline (from T+1 to T+2) and introducing a small-scale buy-side entity exemption, they have taken measures to increase transparency and accountability.

Reporting format and style

The reporting format is now mandated to be in extensible markup language (XML) as per the ISO 20022 standard. Lifecycle reporting will be mandated for all derivatives, ensuring intra-day changes to transactions are captured.

Delegated reporting

Although firms can still delegate their reporting obligations, the ‘safe harbour’ benefits, protections that reduce a firm’s liability for reporting errors made by their delegates, have been removed. This aligns with global practices but places an increased burden on reporting entities to ensure complete and accurate reporting by their delegates.

LEI requirements

The use of Legal Entity Identifiers (LEIs) has been tightened, with only LEIs permitted as entity identifiers under specific conditions. A renewed LEI is mandatory for the reporting entity, counterparty 1, and the central counterparty.

Data elements

ASIC has introduced a Unique Transaction Identifier (UTI) waterfall to guide entities on who should generate the UTI, and a Unique Product Identifier (UPI) is also required as a reportable data element. More broadly, ASIC is aligning its reporting regime with the critical data elements (CDE) introduced in IOSCO's CDE Guidance, adding various other new reportable fields:

• Counterparty details: the client’s country name when there is no LEI.
• Platform identifier: the trading facility for a transaction, equivalent to the ‘Venue’ field in European regulations.
• Interest rates related fields: capturing details of the interest rate spread, including the spread notation, value of the spread, and the currency of the spread for both legs of the transaction
• Options related fields: including the Delta, which measures the sensitivity of an option's price to changes in the price of the underlying asset, and the Option Premium Payment Date, capturing the date on which the option premium is paid

Transaction-to-position conversion

In line with other standards (e.g. ESMA), ASIC now requires position reporting, necessitating the termination of the original transaction and reporting of the new position with a new UTI.

What are MAS’ changes in derivatives reporting?

In July 2021, MAS initiated the process of soliciting opinions on the prospective modifications to the Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013. The new reporting requirements will cover a broad range of derivatives including interest rate, commodity, credit, foreign exchange, and equity derivatives.

Adoption of global standards

MAS aligns closely with global practices, adopting UPI, UTI, and IOSCO’s CDE guidance, and mandating the ISO 20022 XML message format for reporting, reflecting a concerted effort towards harmonisation.

UTI generation

Reporting entities and counterparties will have the flexibility to agree on the UTI generating entity, which can be a third party.

Data elements and reporting obligations

MAS has added data elements like “Package Identifier”, “Asset Class”, and “Contract Type”, and removed certain fields to streamline reporting. The reporting of collateral and margin information is also mandated, but for specific exemptions.

FX Swaps Reporting

MAS mandates FX swaps to be reported as two separate contracts, linked with an 'FX Swap Link ID', accommodating industry data storage practices.

How to comply

Navigating the updated transaction reporting requirements from ASIC and MAS necessitates a strategic and proactive approach. These are five areas for firms to consider:

1. Strategic Mapping and Gap Analysis: Engage regulatory experts, whether in-house or external, to dissect the changes’ implications on your current compliance processes. Pinpoint the gaps and allocate resources to address these areas, ensuring a thorough understanding of the new requirements.
2. Ensuring Data Readiness: At its core, reporting is a data-centric challenge. Prioritise establishing high-quality, robust, and scalable data pipelines and infrastructure. This foundation of data excellence not only facilitates current reporting needs but also positions firms advantageously for future regulatory shifts.
3. Technology Enhancement: Transitioning to new reporting formats and managing additional data fields, potentially in high volumes, warrants an assessment of your technology systems. Ensure your technology is not just compliant, but also efficient and capable of handling the new requirements without significantly inflating time and costs.
4. Workflow Optimization: Regulatory changes can expose operational inefficiencies, introducing uncertainties and vulnerabilities. Proactively streamline and optimise your workflows now to enhance preparedness and resilience for future changes.
5. Validation and Quality Assurance: Establish rigorous data validation and quality assurance processes as your last line of defence against reporting inaccuracies. This step is crucial to catch and correct any discrepancies before submission, safeguarding against non-compliance.

The bigger picture

The upcoming enhancements to regulations in Australia and Singapore are part of a global trend aiming at higher data quality and standardisation in transaction reporting. Similar initiatives are unfolding worldwide, with significant changes seen in the EMIR Refit in the EU, HKMA’s upcoming revisions in Hong Kong, and the CFTC Rewrite in the United States.

Firms operating globally need to stay vigilant and adaptable in this uneven and evolving regulatory landscape. The diversity in rules and timelines across jurisdictions necessitates robust data and technology infrastructures, as well as workflow optimization to manage the complexities of compliance.

Investing in digital regulatory reporting tools and seeking expertise to navigate these changes is not just a response to immediate compliance needs; it’s an investment in long-term operational resilience. As regulatory demands continue to evolve, firms that proactively enhance their reporting processes and infrastructure will be better positioned to navigate future challenges, ensuring sustained compliance and operational efficiency.