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Dodd-Frank Act: CFTC Swap Reporting is back in Spotlight

by Brian Lynch, CEO & Co-Founder of RegTek.Solutions

US Map CFTC Swap Reporting

With the commotion caused by new and evolving regulatory reporting obligations in Europe over the last several years, firms can be forgiven for forgetting about the Dodd-Frank Act. EMIR, MiFIR, MMSR, SFTR and Brexit have monopolized resources and kept compliance, operations and technology teams busy. But the status quo on this side of the Atlantic is coming to an end, and now might be a good time to start paying attention again. As Christopher Giancarlo’s term at the helm of the CFTC comes to an end, we identify 4 topics likely to cause a stir in the ranks of the 105 provisionally registered swap dealers in the next 18 months.

DTCC re-architecture

First off, 2020 will see the DTCC re-architect its North American data center, impacting both Canadian (CSA) and US (DFA-CFTC) swaps reporting. And while the goal of this exercise is ultimately to improve usability, reduce complexity and provide increased transparency to users, we know from experience the far-reaching impact this will have on reporting firms. Over the past few years, similar revamps have taken place in Europe and APAC, highlighting the importance of a sound change management programme. Major changes are expected to be introduced including new fields, new reports and the institution of the OTC Harmonized message template.

CFTC rewrite

Next on the agenda is the CFTC review of its swaps regulatory framework[1], commonly referred to as the CFTC rewrite. The regulatory overhaul has been threatening for some time and is now likely to happen next year too, with the final version of the rules currently expected to be published in December 2019. In fact, the DTCC US Data Center re-architecture was delayed and brought in line with the expected regulatory milestone.

What we’ve seen so far in the consultation documents and draft rules constitutes a significant change. The CFTC will be moving from principles-based reporting to a far more prescriptive and stricter set of rules. This will be a significant overhaul of the Dodd-Frank reporting rules with new concepts, new values and a far more extensive set of validations on around 180 fields, all which will have to be analyzed, developed, tested and validated. We believe that the scale of change will be more onerous than the EMIR RTS rewrite of 2017. Plus, it will come shortly after the SFTR implementation in Europe which is more bad news for stretched regulatory teams.

Regulatory scrutiny

On top of these extensive regulatory and market infrastructure changes, everything seems to indicate that the NFA is ramping up its enforcement actions. We know from interactions with some of our clients that NFA examinations can be particularly invasive, especially when they don’t go to plan. The investigation and issues identified have been wide ranging and deeper than expected, and the remediation plans provided come with tight deadlines attached.  

That said, there haven’t been any major sanctions so far. But it’s safe to assume this will change when the new rules come into effect. The NFA recognises that the current rules are not precise enough, hence the rewrite. Soon enough, firms will have no excuse but to get their reporting right. We expect the regulator’s focus on quality, reporting standards, completeness, accuracy and timeliness of reporting to all be heightened, and firms can look forward a more motivated and well-informed NFA after 2020. This will be a good time for Swap Dealers to remind themselves of the DSIO advisory[2] that was issued in 2015 demanding that Swap Dealers implement better controls and change management practices.

Legacy Systems

When it comes to trade and transaction reporting, we have now established that there’s more to think about on the west of the Atlantic than there has been in a long time. And considering how much time has passed since the ‘CFTC swap reporting go-live, we would imagine that only very few people are left in place who remember why, where or how the original systems were build. With that in mind, now would be a good time to start brushing up. The investment will be worth it and will hold firms in particularly good stead if the SEC ever chooses to finalize the rules for SEC SBSR[3] (Securities Based Swaps Reporting).

How RegTek.Solutions helps

When the swap reporting obligations first went live, the term ‘RegTech’ hadn’t even been coined yet, making it no surprise that RegTek.Solutions hadn’t been incorporated then. The regulatory and market infrastructure changes to come in the US provide firms with a great opportunity to start adopting regulatory technology tools as strategic elements of their projects. We’ve all learned a lot from the ESMA-driven changes in the past 5 years, time to put that experience into practice in the Americas.

Founded in 2017, RegTek.Solutions has now become an award-winning trade and transaction platform offering testing, controls and connectivity solutions for Dodd-Frank as well as other global obligations. We offer intelligent solutions, backed by a long-term strategic SLA, making sure you’re kept ahead of regulatory and market infrastructure changes just like those mapped out above.

If you’re looking to get a jump on the impending changes to CFTC reporting, or if you’ve been through an NFA exam and are looking for help with remediation, please contact us on [email protected]

Join the conversation

Finally, we are delighted to announce that our Industry Relations Lead and Senior BA Alan McIntyre will be exploring the DTCC Re-Architecture and CFTC re-write in more detail in an upcoming series of short thought-leadership pieces. Join the conversation and stay up to date by joining our CFTC Reporting LinkedIn Group:

Brian Lynch is the CEO & Co-Founder of RegTek.Solutions, responsible for defining and executing the company’s strategy. Prior to joining Risk Focus in 2011, and launching RegTek Solutions in 2017, he spent 14 years at UBS, most recently as Chief Operating Officer for Delta One trading, a role in which he successfully brought several new business lines and products to market. He also has many years’ experience at the bank in fixed income, credit default swaps and prime brokerage. Brian received his Bachelor of Science in Construction Management from the University of Witwatersrand.

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